10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

Quarterly Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2015

FNB BANCORP

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation)

000-49693	91-2115369
(Commission File Number)	(IRS Employer Identification No.)
975 El Camino Real, South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 588-6800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock as of July 31, 2015: 4,307,489 shares.

FNB BANCORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

	Page No
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets	3
Consolidated Statements of Earnings	4
Consolidated Statements of Comprehensive Earnings	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures about Market Risk	48
Item 4. Controls and Procedures	48
PART II OTHER INFORMATION	49
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3. Defaults Upon Senior Securities	49
Item 4. Mine Safety Disclosures	49
Item 5. Other Information	49
Item 6. Exhibits	50
SIGNATURES	50

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

ASSETS

	June 30,		December 31,
(Dollar amounts in thousands)	2015		2014
Cash and due from banks	$	91,662	$	14,978
Interest-bearing time deposits with financial institutions		2,138		2,784
Securities available-for-sale, at fair value		295,171		264,881
Loans, net of allowance for loan losses of $9,836 and $9,700 on June 30, 2015 and December 31, 2014		571,665		583,715
Bank premises, equipment, and leasehold improvements, net		10,527		10,951
Bank owned life insurance		12,681		12,510
Other equity securities		6,069		5,769
Accrued interest receivable		3,909		3,725
Other real estate owned, net		806		763
Goodwill		1,841		1,841
Prepaid expenses		922		1,045
Other assets		12,437		14,202
Total assets	$	1,009,828	$	917,164
Liabilities and Stockholders’ Equity
Deposits
Demand, noninterest bearing	$	249,420	$	202,811
Demand, interest bearing		101,693		89,548
Savings and money market		437,092		394,676
Time		104,935		105,159
Total deposits		893,140		792,194
Federal Home Loan Bank advances		—		9,000
Note payable		5,250		5,550
Accrued expenses and other liabilities		11,001		13,332
Total liabilities		909,391		820,076
Stockholders’ equity
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 4,305,987 shares at June 30, 2015 and 4,259,306 shares at December 31, 2014		67,597		66,791
Retained earnings		31,452		28,729
Accumulated other comprehensive income, net of tax		1,388		1,568
Total stockholders’ equity		100,437		97,088
Total liabilities and stockholders’ equity	$	1,009,828	$	917,164

See accompanying notes to consolidated financial statements.

3

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

(Dollar amounts and average shares are in thousands, except earnings per share amounts)

	Three months ended					Six months ended
	June 30,					June 30,
	2015			2014		2015			2014
Interest income:
Interest and fees on loans	$	7,855		$	7,897	$	15,565		$	15,524
Interest on taxable securities		843			851		1,673			1,694
Interest on tax-exempt securities		589			492		1,103			980
Interest on time dep w /other financial institutions		13			27		27			46
Total interest income		9,300			9,267		18,368			18,244
Interest expense:
Interest on deposits		538			484		992			945
Interest on FHLB advances		—			3		1			11
Interest on note payable		57			68		116			68
Total interest expense		595			555		1,109			1,024
Net interest income		8,705			8,712		17,259			17,220
Provision for loan losses		75			—		150			75
Net interest income after provision for loan losses		8,630			8,712		17,109			17,145
Noninterest income:
Service charges		627			647		1,238			1,284
Net gain on sale of available-for-sale securities		152			28		221			39
Bank owned life insurance earnings		87			90		171			186
Other income		401			215		715			517
Total noninterest income		1,267			980		2,345			2,026
Noninterest expense:
Salaries and employee benefits		4,111			4,177		8,413			8,395
Occupancy expense		646			694		1,314			1,374
Equipment expense		410			406		815			797
Professional fees		354			501		741			1,032
FDIC assessment		150			180		300			360
Telephone, postage and supplies		256			313		545			599
Advertising		170			136		269			221
Data processing expense		147			134		281			279
Low income housing expense		71			110		142			220
Surety insurance		88			67		176			134
Directors expense		72			63		144			126
Loss (gain) on sale of other real estate owned, net		—			60		—			(220	)
Other real estate owned (recovery) expense, net		(6	)		11		(6	)		88
Other expense		320			358		598			647
Total noninterest expense		6,789			7,210		13,732			14,052
Earnings before provision for income tax expense		3,108			2,482		5,722			5,119
Provision for income tax expense		1,037			853		1,852			1,656
Net earnings		2,071			1,629		3,870			3,463
Dividends and discount accretion on preferred stock		—			—		—			170
Net earnings available to common stockholders	$	2,071		$	1,629	$	3,870		$	3,293
Earnings per share data:
Basic	$	0.48		$	0.39	$	0.90		$	0.78
Diluted	$	0.47		$	0.37	$	0.88		$	0.76
Weighted average shares outstanding:
Basic		4,296			4,230		4,285			4,207
Diluted		4,415			4,367		4,409			4,349

See accompanying notes to consolidated financial statements.

4

 FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(UNAUDITED) 

(Dollar amounts in thousands)	Three months ended						Six months ended
	June 30,						June 30,
	2015			2014			2015			2014
Net earnings	$	2,071		$	1,629		$	3,870		$	3,463
Unrealized holding gain (loss) on available-for-sale securities, net of tax benefit of $954 and $34 for three and six months ended June 30, 2015, and net of tax benefit of $1,034 and $1,754 for three and six months ended June 30, 2014.		(1,373	)		1,487			(50	)		2,522
Reclassification adjustment for gain on available-for-sale securities sold, net of tax of $63 and $91 for three and six months ended June 30, 2015, and $11 and $16 for three and six months ended June 30, 2014, respectively		(89	)		(17	)		(130	)		(23	)
Other Comprehensive (Loss) Earnings		(1,462	)		1,470			(180	)		2,499
Total comprehensive earnings	$	609		$	3,099		$	3,690		$	5,962

See accompanying notes to consolidated financial statements.

5

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(Dollar amounts in thousands)	Six months ended
	June 30
	2015			2014
Cash flow from operating activities:
Net earnings	$	3,870		$	3,463
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on sale of securities available-for-sale		(221	)		(39	)
Gain on sale of other real estate owned, net		—			(220	)
Depreciation, amortization and accretion		1,668			1,730
Stock-based compensation expense		122			139
Earnings on bank owned life insurance		(171	)		(186	)
Decrease in net deferred loan fees		(45	)		(18	)
Provision for loan losses		150			75
(Increase) decrease in accrued interest receivable		(184	)		134
Decrease in prepaid expense		123			197
Decrease in other assets		1,765			661
Decrease in accrued expenses and other liabilities		(2,765	)		(33	)
Net cash provided by operating activities		4,312			5,903
Cash flows from investing activities:
Purchase of securities available-for-sale		(62,042	)		(18,791	)
Proceeds from matured/called/sold securities available-for-sale		30,565			18,138
Investment, net of redemption, in other equity securities		(300	)		(276	)
Redemption of time deposits of other banks		646			1,082
Proceeds from sale of other real estate owned		—			1,461
Net investment in other real estate owned		(43	)		(77	)
Net decrease (increase) in loans		11,945			(4,746	)
Purchases of bank premises, equipment, leasehold improvements		(141	)		(526	)
Net cash provided by investing activities		(19,370	)		(3,735	)

See accompanying notes to consolidated financial statements.

6

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Six months ended
	June 30
	2015			2014
Cash flows from financing activities:
Net increase in demand and savings deposits	$	101,170		$	34,011
Net decrease in time deposits		(224	)		(17,404	)
Decrease in FHLB advances		(9,000	)		(8,000	)
Proceeds from note payable		—			6,000
Principal reduction of note payable		(300	)		(150	)
Dividends paid on common stock		(588	)		(403	)
Exercise of stock options		684			1,073
Redemption of preferred stock series C		—			(9,450	)
Dividends paid on preferred stock series C		—			(170	)
Net cash provided by financing activities		91,742			5,507
NET INCREASE IN CASH AND CASH EQUIVALENTS		76,684			7,675
Cash and cash equivalents at beginning of period		14,978			14,007
Cash and cash equivalents at end of period	$	91,662		$	21,682
Additional cash flow information:
Interest paid		1,087			1,009
Income taxes paid		2,889			1,537
Non-cash investing and financing activities:
Accrued dividends		559			445
Change in unrealized (loss) gain in available-for-sale securities, net of tax		(180	)		2,499
OREO sale funded by loan origination		—			3,400

See accompanying notes to consolidated financial statements.

7

FNB BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(UNAUDITED)

NOTE A – BASIS OF PRESENTATION

FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo, San Francisco and Santa Clara counties.

All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2014. Results of operations for interim periods are not necessarily indicative of results for the full year. Certain prior year information has been reclassified to conform to current year presentation. The reclassifications had no impact on consolidated net earnings or stockholders’ equity.

NOTE B – STOCK OPTION PLANS

Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined using an option pricing model that considers the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.

The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.

8

The amount of compensation expense for options recorded in the quarters ended June 30, 2015 and 2014 was $61,000 and $69,000, respectively. The amount of compensation expense recorded for the six months ended June 30, 2015 and 2014 was $122,000 and $139,000, respectively. There was no income tax benefit recognized from stock options exercised during the quarter and year to date ended June 30, 2015, but there was an income tax benefit recognized for stock options exercised of $245,000 for the quarter and year to date ended June 30, 2014.

The intrinsic value for options exercised during the six months ended June 30, 2015 was $625,000. The intrinsic value for options exercisable as of June 30, 2015 was $3034,000. The intrinsic value for options exercised during the six months ended June 30, 2014 was $259,000. The intrinsic value of options exercisable at June 30, 2014 was $2,897,000. There were no options granted for the first six months ended June 30, 2015 and 2014, respectively.

The amount of total unrecognized compensation expense related to non-vested options at June 30, 2015 was $611,000, and the weighted average period over which it will be amortized is 3.2 years.

NOTE C – EARNINGS PER SHARE CALCULATION

Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. All common stock equivalents are anti-dilutive when a net loss occurs. A 5% stock dividend was declared in the fourth quarter of 2014, and prior per share amounts have been adjusted to reflect the 5% stock dividend.

Earnings per share have been computed based on the following:

(All amounts in thousands)	Three months ended				Six months ended
	June 30,				June 30,
	2015		2014		2015		2014
Net earnings	$	2,071	$	1,629	$	3,870	$	3,463
Dividends and discount accretion on preferred stock		—		—		—		(170	)
Net earnings available to common stockholders	$	2,071	$	1,629	$	3,870	$	3,633
Average number of shares outstanding		4,296		4,230		4,285		4,207
Effect of dilutive options		119		130		124		135
Average number of shares outstanding used to calculate diluted earnings per share		4,415		4,367		4,409		4,349
Anti-dilutive options not included		93,751		65,940		94,882		258,741

9

NOTE D – SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available-for-sale are as follows:

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
June 30, 2015:
U.S. Treasury securities	$	5,996	$	27	$	(4	)	$	6,019
Obligations of U.S. government agencies		78,545		354		(126	)		78,773
Mortgage-backed securities		66,150		909		(497	)		66,562
Obligations of states and political subdivisions		109,615		2,208		(567	)		111,256
Corporate debt		32,512		165		(116	)		32,561
	$	292,818	$	3,663	$	(1,310	)	$	295,171
December 31, 2014:
U.S. Treasury securities	$	3,975	$	12	$	(29	)	$	3,958
Obligations of U.S. government agencies		63,090		270		(298	)		63,062
Mortgage-backed securities		78,076		1,002		(661	)		78,417
Obligations of states and political subdivisions		82,151		2,534		(143	)		84,542
Corporate debt		34,931		176		(205	)		34,902
	$	262,223	$	3,994	$	(1,336	)	$	264,881

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of June 30, 2015 and December 31, 2014, respectively, is as follows:

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2015
U. S. Treasury securities	$	—	$	—		$	2,034	$	(4	)	$	2,034	$	(4	)
Obligations of U.S. government agencies		22,189		(71	)		6,992		(55	)		29,181	$	(126	)
Mortgage-backed securities		15,298		(177	)		14,989		(320	)		30,287		(497	)
Obligations of states and political subdivisions		36,204		(517	)		1,831		(50	)		38,035		(567	)
Corporate debt		9,390		(97	)		2,483		(19	)		11,873		(116	)
Total	$	83,081	$	(862	)	$	28,329	$	(448	)	$	111,410	$	(1,310	)

10

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2014:
U. S. Treasury securities	$	—	$	—		$	2,015	$	(29	)	$	2,015	$	(29	)
Obligations of U.S. government agencies		13,178		(43	)		19,116		(255	)		32,294		(298	)
Mortgage-backed securities		5,056		(10	)		36,382		(651	)		41,438		(661	)
Obligations of states and political subdivisions		8,678		(49	)		5,696		(94	)		14,374		(143	)
Corporate debt		18,065		(125	)		4,919		(80	)		22,984		(205	)
Total	$	44,977	$	(227	)	$	68,128	$	(1,109	)	$	113,105	$	(1,336	)

At June 30, 2015, there were twenty-three securities in an unrealized loss position for twelve consecutive months or more. At the same date, there were eighty-five securities in an unrealized loss position for less than 12 consecutive months. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to changes in interest rates and the Company does not intend to sell nor expects it will be required to sell investment securities identified with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at June 30, 2015 and December 31, 2014.

The amortized cost and carrying value of available-for-sale debt securities as of June 30, 2015 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2015: 

(Dollar amounts in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale:
Due in one year or less	$	13,123	$	13,230
Due after one through five years		126,436		127,345
Due after five years through ten years		124,134		125,118
Due after ten years		29,125		29,478
	$	292,818	$	295,171

For the six months ended June 30, 2015 and June 30, 2014, respectively, gross realized gains amounted to $221,000 and $39,000, on securities sold for $19,228,000 and $5,067,000, respectively. For the six months ended June 30, 2015 and June 30, 2014, there were no gross realized losses. For the three months ended June 30, 2015 and June 30, 2014, respectively, gross realized gains amounted to $152,000 and $28,000 on securities sold for $1,916,000 and $4,044,000 respectively. For the three months ended June 30, 2015 and June 30, 2014, there were no gross realized losses.

11

At June 30, 2015, securities with an amortized cost of $106,152,000 and fair value of $107,069,000 were pledged as collateral for public deposits and for other purposes required by law.

NOTE E - LOANS

Loans are summarized as follows at June 30, 2015 and December 31, 2014:

								Total
(Dollar amounts in thousands)	FNB							Balance
	Bancorp							June 30,
June 30, 2015	Originated			PNCI		PCI		2015
Commercial real estate	$	298,454		$	30,528	$	1,321	$	330,303
Real estate construction		30,744			1,904		—		32,648
Real estate multi-family		41,620			9,993		—		51,613
Real estate 1 to 4 family		123,811			4,089		—		127,900
Commercial & industrial		29,649			8,096		—		37,745
Consumer loans		1,696			—		—		1,696
Gross loans		525,974			54,610		1,321		581,905
Net deferred loan fees		(404	)		—		—		(404	)
Allowance for loan losses		(9,836	)				—		(9,836	)
Net loans	$	515,734		$	54,610	$	1,321	$	571,665
								Total
(Dollar amounts in thousands)	FNB							Balance
	Bancorp							December 31,
December 31, 2014	Originated			PNCI		PCI		2014
Commercial real estate	$	285,252		$	31,852	$	1,323	$	318,427
Real estate construction		37,827			1,944		—		39,771
Real estate multi-family		43,379			10,445		—		53,824
Real estate 1 to 4 family		123,522			5,210		—		128,732
Commercial & industrial		42,551			9,111		—		51,662
Consumer loans		1,448			—		—		1,448
Gross loans		533,979			58,562		1,323		593,864
Net deferred loan fees		(449	)		—		—		(449	)
Allowance for loan losses		(9,700	)		—		—		(9,700	)
Net loans	$	523,830		$	58,562	$	1,323	$	583,715

Note: PNCI means Purchased, Not Credit Impaired. PCI means Purchased, Credit Impaired.

12

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2015
(Dollar amounts in thousands)
						Real			Real
						Estate			Estate
	Commercial		Real Estate			Multi			1 to			Commercial
	Real estate		Construction			family			4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,305	$	1,420		$	152		$	1,845		$	961		$	61		$	9,744
Charge-offs		—		—			—			—			—			(5	)		(5	)
Recoveries		16		—			—			—			5			1			22
Provision		706		(723	)		46			169			(118	)		(5	)		75
Ending balance	$	6,027	$	697		$	198		$	2,014		$	848		$	52		$	9,836
Ending balance: individually evaluated for impairment	$	133	$	—		$	—		$	526		$	236		$	8		$	903
Ending balance: collectively evaluated for impairment	$	5,894	$	697		$	198		$	1,488		$	612		$	44		$	8,933
	Allowance for Credit Losses
	For the Six Months Ended June 30, 2015
(Dollar amounts in thousands)
						Real			Real
						Estate			Estate
	Commercial		Real Estate			Multi			1 to			Commercial
	Real Estate		Construction			family			4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,549	$	849		$	206		$	1,965		$	1,073		$	58		$	9,700
Charge-offs		—		—			—			(45	)		—			(11	)		(56	)
Recoveries		22		—			—			1			18			1			42
Provision		456		(152	)		(8	)		93			(243	)		4			150
Ending balance	$	6,027	$	697		$	198		$	2,014		$	848		$	52		$	9,836
Ending balance: individually evaluated for impairment	$	133	$	—		$	—		$	526		$	236		$	8		$	903
Ending balance: collectively evaluated for impairment	$	5,894	$	697		$	198		$	1,488		$	612		$	44		$	8,933

13

	Recorded Investment in Loans at June 30, 2015
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Real Estate		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	330,303	$	32,648	$	51,613	$	127,900	$	37,745	$	1,696	$	581,905
Ending balance: individually evaluated for impairment	$	9,544	$	2,364	$	—	$	4,843	$	1,938	$	59	$	18,748
Ending balance: collectively evaluated for impairment	$	320,759	$	30,284	$	51,613	$	123,057	$	35,807	$	1,637	$	563,157

	Recorded Investment in Loans at December 31, 2014
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Commercial		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	318,427	$	39,771	$	53,824	$	128,732	$	51,662	$	1,448	$	593,864
Ending balance: individually evaluated for impairment	$	9,530	$	2,373	$	—	$	4,333	$	2,315	$	64	$	18,615
Ending balance: collectively evaluated for impairment	$	308,897	$	37,398	$	53,824	$	124,399	$	49,347	$	1,384	$	575,249

14

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial			Real Estate			Multi		1 to		Commercial
	Real estate			Construction			family		4 family		& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,624		$	735		$	369	$	1,835	$	1,268		$	66		$	9,897
Charge-offs		—			(183	)		—		—		—			(20	)		(203	)
Recoveries		1,051			—			—		1		110			3			1,165
Provision		(460	)		165			96		414		(212	)		(3	)		—
Ending balance	$	6,215		$	717		$	465	$	2,250	$	1,166		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	128		$	—		$	—	$	481	$	151		$	—		$	760
Ending balance: collectively evaluated for impairment	$	6,087		$	717		$	465	$	1,769	$	1,015		$	46		$	10,099

	Allowance for Credit Losses
	For the Six months Ended June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial			Real Estate			Multi		1 to			Commercial
	Real estate			Construction			family		4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,763		$	734		$	293	$	1,788		$	1,237		$	64		$	9,879
Charge-offs		—			(183	)		—		(62	)		—			(31	)		(276	)
Recoveries		1,052			—			—		2			124			3			1,181
Provision		(600	)		166			172		522			(195	)		10			75
Ending balance	$	6,215		$	717		$	465	$	2,250		$	1,166		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	128		$	—		$	—	$	481		$	151		$	—		$	760
Ending balance: collectively evaluated for impairment	$	6,087		$	717		$	465	$	1,769		$	1,015		$	46		$	10,099

15

	Recorded Investment in Loans at June 30, 2014
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Real Estate		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	319,661	$	39,760	$	53,499	$	114,869	$	42,545	$	1,434	$	571,768
Ending balance: individually evaluated for impairment	$	9,043	$	2,382	$	—	$	3,847	$	4,133	$	9	$	19,414
Ending balance: collectively evaluated for impairment	$	310,618	$	37,378	$	53,499	$	111,022	$	38,412	$	1,425	$	552,354

16

	Impaired Loans
	As of and for the six months ended June 30, 2015
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	4,411	$	5,292	$	—	$	4,437	$	125
Commercial real estate construction		2,364		2,547		—		2,368		68
Residential- 1 to 4 family		1,478		1,481		—		1,283		31
Commercial and industrial		546		791		—		743		18
Consumer		—		—		—		—		—
Total		8,799		10,111		—		8,831		242
With an allowance recorded
Commercial real estate	$	5,133	$	5,138	$	133	$	5,172	$	130
Commercial real estate construction		—		—		—		—		—
Residential- 1 to 4 family		3365		3383		526		3,397		69
Commercial and industrial		1,392		1,740		236		1,563		23
Consumer		59		59		8		61		4
Total		9,949		10,320		903		10,193		226
Total
Commercial real estate	$	9,544	$	10,430	$	133	$	9,609	$	255
Commercial real estate construction		2,364		2,547		—		2,368		68
Residential - 1 to 4 family		4,843		4,864		526		4,680		100
Commercial and industrial		1,938		2,531		236		2,306		41
Consumer		59		59		8		61		4
Grand total	$	18,748	$	20,431	$	903	$	19,024	$	468

17

	Impaired Loans
	As of and for the year ended December 31, 2014
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	4,462	$	5,333	$	—	$	4,473	$	304
Commercial real estate construction		2,373		2,556		—		1,846		150
Residential- 1 to 4 family		1,594		1,737		—		1,379		67
Commercial and industrial		582		939		—		788		54
Consumer		—		—		—		—		—
Total		9,011		10,565		—		8,486		575
With an allowance recorded
Commercial real estate	$	5,068	$	5,071	$	101	$	5,127	$	258
Residential- 1 to 4 family		2,739		2,754		432		2,759		111
Commercial and industrial		1,733		2,100		225		1,907		33
Consumer		64		64		8		67		5
Total		9,604		9,989		766		9,860		407
Total
Commercial real estate	$	9,530	$	10,404	$	101	$	9,600	$	562
Commercial real estate construction		2,373		2,556		—		1,846		150
Residential- 1 to 4 family		4,333		4,491		432		4,138		178
Commercial and industrial		2,315		3,039		225		2,695		87
Consumer		64		64		8		67		5
Grand total	$	18,615	$	20,554	$	766	$	18,346	$	982

18

Nonaccrual loans totaled $6,020,000 and $5,648,000 as of June 30, 2015 and December 31, 2014. The difference between impaired loan and nonaccrual loan classifications are loans that have been restructured and performing under modified loan agreements, and where principal and interest is considered to be collectible are considered impaired loans.

	Loans on Nonaccrual Status as of
(Dollar amounts in thousands)	June 30,		December 31,
	2015		2014
Commercial real estate	$	2,227	$	2,111
Real estate - 1 to 4 family		1,727		1,181
Commercial & industrial		2,007		2,292
Consumer		59		64
Total	$	6,020	$	5,648

Interest income on impaired loans of $468,000 was recognized for cash payments received during the six months ended June 30, 2015, and $982,000 was recognized for cash payments received during the year ended December 31, 2014, respectively. Interest income on impaired loans for cash payments received during the six month period ended June 30, 2014 was $455,000; for the three months ended June 30, 2015 it was $243,000, and for the three months ended June 30, 2014 it was $184,000. The amount of interest on impaired loans not collected for the six months ended June 30, 2015 was $198,000 and for the year ended December 31, 2014 was $398,000. For the six months ended June 30, 2014, it was $214,000; for the three months ended June 30, 2015, it was $92,000; for the three months ended June 30, 2014 it was $64,000. The cumulative amount of unpaid interest on impaired loans was $3,142,000 at June 30, 2015, and $3,829,000 at the year ended December 31, 2014. Average recorded investment in impaired loans for six months ended June 30, 2014 was $19,211,000. Average recorded investment in impaired loans for three months ended June 30, 2015 was $18,963,000, and for the three months ended June 30, 2014 was $21,963,000, and interest paid on impaired loans for 3 months for three months ended June 30, 2015 was $243,000. Interest paid for three months ended June 30, 2014 was $184,000. Total outstanding principal of troubled debt restructured loans as of June 30, 2015 was $16,025,000, of which $9,570,000 was commercial real estate loans, $1,295,000 was real estate construction loans, $3,450,000 was real estate one to four family, and $1,710,000 was commercial loans. Total outstanding principal of troubled debt restructured loans at December 31, 2014 was $16,517,000, of which $2,054,000 was commercial loans, $1,304,000 was real estate construction loans, $3,661,000 was real estate one to four family, and $9,498,000 was commercial real estate loans.

19

Troubled Debt Restructurings 

	Total troubled debt restructured loans outstanding at
(dollars in thousands)	June 30, 2015						December 31, 2014
			Non-						Non-
	Accrual		accrual		Total		Accrual		accrual		Total
	status		status		modifications		status		status		modifications
Commercial real estate	$	7,462	$	2,108	$	9,570	$	7,407	$	2,091	$	9,498
Real Estate construction		1,295		—		1,295		1,304		—		1,304
Real estate 1 to 4 family		2,973		477		3,450		3,153		508		3,661
Commercial & industrial		—		1,710		1,710		294		1,760		2,054
Total	$	11,730	$	4,295	$	16,025	$	12,158	$	4,359	$	16,517

Modification Categories

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.

Rate Modification – A modification in which the interest rate is changed.

Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

As of June 30, 2015, there were no commitments for additional funding of troubled debt restructurings.

There were no new modifications for the three months ended June 30, 2015.

During the periods ended June 30, 2015, no loans defaulted that were modified as troubled debt restructurings within the previous twelve months.

The following table details modifications for the six months ended June 30, 2015:

20

	Modifications
	For the six months ended June 30, 2015
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1	$	477	$	477
Total		1	$	477	$	477

All restructurings were a modification of interest rate and as a result payment.

The following table details modifications for the six months ended June 30, 2014:

	Modifications
	For the six months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3	$	1,454	$	1,454
Real estate 1 to 4 family		1		572		572
Total		4	$	2,026	$	2,026

	Modifications
	For the three months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3	$	1,454	$	1,454
Total		3	$	1,454	$	1,454

During the period ended June 30, 2014, no loans defaulted that were modified as troubled debt restructurings within the previous twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

Risk rating system

Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.

21

Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. These well-defined weaknesses may include a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.

Doubtful loans represent credits with weakness inherent in the Substandard classification and where collection or liquidation in full is highly questionable. To be classified Doubtful, there must be specific pending factors which prevent the Loan Review Officer from determining the amount of loss contained in the credit. When the amount of loss can be reasonably estimated, that amount is classified as “loss” and the remainder is classified as Substandard.

Real Estate – Multi-Family

Our multi-family commercial real estate loans are secured by multi-family properties located primarily in San Mateo and San Francisco counties. These loans are made to investors where our primary source of repayment is from cash flows generated by the properties, through rent collections. The borrowers’ promissory notes are secured with recorded liens on the underlying properties. The borrowers would normally also be required to personally guarantee repayment of the loans. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Commercial Real Estate Loans

Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan.

The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

22

Real Estate Construction Loans

Our real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.

Real Estate-1 to 4 family Loans

Our residential real estate loans are generally made to borrowers who are buying or refinancing their primary personal residence or a rental property of 1-4 single family residential units. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income and/or property values decline significantly.

Commercial and Industrial Loans

Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.

Consumer Loans

Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income, or file for relief from creditors through bankruptcy proceedings.

23

	Age Analysis of Past Due Loans
	As of June 30, 2015
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	—	$	612	$	143	$	755	$	297,699	$	298,454
Real estate construction		—		—		—		—		30,744		30,744
Real estate multi family		—		—		—		—		41,620		41,620
Real estate 1 to 4 family		110		—		509		619		123,192		123,811
Commercial and industrial		—		170		2,006		2,176		27,473		29,649
Consumer		—		—		—		—		1,696		1,696
Total	$	110	$	782	$	2,658	$	3,550	$	522,424	$	525,974
Purchased
Not credit impaired
Commercial real estate	$	108	$	1,898	$	—	$	2,006	$	28,522	$	30,528
Real estate construction		—		—		—		—		1,904		1,904
Real estate multi-family		—		—		—		—		9,993		9,993
Real estate 1 to 4 family		—		—		400		400		3,689		4,089
Commercial and industrial		—		—		—		—		8,096		8,096
Total	$	108	$	1,898	$	400	$	2,406	$	52,204	$	54,610
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,321	$	1,321
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,321	$	1,321

At June 30, 2015, there were no loans that were 90 days or more past due where interest was still accruing.

The over 90 days column includes nonaccruals that were over 90 days, but does not include loans that are in nonaccrual status for reasons other than past due.

24

	Age Analysis of Past Due Loans
	As of December 31, 2014
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	8	$	879	$	—	$	887	$	284,365	$	285,252
Real estate construction		—		708		—		708		37,119		37,827
Real estate multi family		3,575		—		—		3,575		39,804		43,379
Real estate 1 to 4 family		330		200		1,112		1,642		121,880		123,522
Commercial & industrial		775		73		1,710		2,558		39,993		42,551
Consumer		—		—		64		64		1,384		1,448
Total	$	4,688	$	1,860	$	2,886	$	9,434	$	524,545	$	533,979
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	—		—	$	31,852	$	31,852
Real estate construction		—		—		—		—		1,944		1,944
Real estate multi-family		—		—		—		—		10,445		10,445
Real estate 1 to 4 family		—		400		—		400		4,810		5,210
Commercial & industrial		—		—		—		—		9,111		9,111
Total	$	—	$	400	$	—	$	400	$	58,162	$	58,562
Purchased
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,323	$	1,323
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,323	$	1,323

At December 31, 2014 there were no loans that were 90 days or more past due where interest was still accruing.

25

	Credit Quality Indicators
	As of June 30, 2015
(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	291,705	$	1,883	$	4,866	$	—	$	298,454
Real estate construction		29,627		—		1,117		—		30,744
Real estate multi-family		41,620		—		—		—		41,620
Real estate 1 to 4 family		122,603		—		1,019		189		123,811
Commercial and industrial		29,035		—		614		—		29,649
Consumer loans		1,590		—		106		—		1,696
Totals	$	516,180	$	1,883	$	7,722	$	189	$	525,974
Purchased
Not credit impaired
Commercial real estate	$	24,709	$	—	$	5,819	$	—	$	30,528
Real estate construction		1,904		—		—		—		1,904
Real estate multi-family		9,993		—		—		—		9,993
Real estate 1 to 4 family		3,689		—		400		—		4,089
Commercial and industrial		8,096		—		—		—		8,096
Total	$	48,391	$	—	$	6,219	$	—	$	54,610
Credit impaired
Commercial real estate									$	1,321
Total									$	1,321

26

	Credit Quality Indicators
	As of December 31, 2014
(Dollar amounts in thousands)
			Special		Sub-				Total
Originated	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	281,216	$	1,913	$	2,031	$	92	$	285,252
Real estate construction		38,962		—		1,135		—		37,827
Real estate multi-family		43,379		—		—		—		43,379
Real estate 1 to 4 family		122,499		—		1,023		—		123,522
Commercial & industrial		41,394		—		1,157		—		42,551
Consumer loans		1,384		—		64		—		1,448
Totals	$	528,834	$	1,913	$	5,410	$	92	$	533,979
Purchased
Not credit impaired
Commercial real estate	$	26,009	$	—	$	5,843	$	—	$	31,852
Real estate construction		1,944		—		—		—		1,944
Real estate multi-family		10,445		—		—		—		10,445
Real estate 1 to 4 family		4,810		—		—		400		5,210
Commercial & industrial		9,111		—		—		—		9,111
Total	$	52,319	$	—	$	5,843	$	400	$	58,562
Purchased
Credit impaired
Commercial real estate									$	1,323
Total									$	1,323

NOTE F - BORROWINGS

Federal home Loan Bank advances

There were no overnight advances at June 30, 2015.

Corporate loan

On March 27, 2014, FNB Bancorp received funding under a $6,000,000 term loan credit facility. This loan carries a variable rate of interest that fluctuates on a monthly basis. The interest rate is based on the 3 month LIBOR rate plus 4%. Payments of $50,000 in principal plus accrued interest are payable monthly. The first loan payment was due and was paid on May 1, 2014. The maturity date on this credit facility is March 26, 2019. On the maturity date, all outstanding principal plus accrued interest shall become due and payable. FNB Bancorp has pledged its stock ownership in First National Bank of Northern California as collateral subject to the terms and conditions contained in the Loan Agreement and the Pledge and Security Agreement. FNB Bancorp retains the right to prepay this debt at any time upon not less than 7 days’ prior written notice to Lender. The proceeds from this loan were contributed to the Bank as an additional capital contribution. This capital contribution qualified as Tier 1 capital for the Bank under regulatory capital guidelines.

27

NOTE G – FAIR VALUE MEASUREMENT

The following table presents information about the Company’s assets and liabilities measured at fair value as of June 30, 2015 and December 31, 2014, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. During the first six months of 2015 and 2014, there were no transfers between levels of fair value hierarchy.

The following tables present the recorded amounts of assets measured at fair value on a recurring basis: 

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2015, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2015		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	6,019	$	6,019	$	—	$	—
Obligations of U.S. Government agencies		78,773		—		78,773		—
Mortgage-backed securities		66,562		—		66,562		—
Obligations of states and political subdivisions		111,256		—		111,256		—
Corporate debt		32,561		—		32,561		—
Total assets measured at fair value	$	295,171	$	6,019	$	289,152	$	—

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			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2014, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2014		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,958	$	3,958	$	—	$	—
Obligations of U.S. Government agencies		63,062		—		63,062		—
Mortgage-backed securities		78,417		—		78,417		—
Obligations of states and political subdivisions		84,542		—		84,542		—
Corporate debt		34,902		—		34,902		—
Total assets measured at fair value	$	264,881	$	3,958	$	260,923	$	—

The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis: 

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2015, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2015		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans:
Commercial real estate	$	124	$	—	$	—	$	124
Residential- 1 to 4 family		213		—		—		213
Commercial and industrial		1,088		—		—		1,088
Total impaired assets measured at fair value	$	1,425	$	—	$	—	$	1,425
			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2014, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2014		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans:
Commercial real estate	$	381	$	—	$	—	$	381
Residential-1 to 4 family		323		—		—		323
Commercial and industrial		1,472		—		—		1,472
Consumer		56		—		—		56
Total impaired assets measured at fair value	$	2,232	$	—	$	—	$	2,232

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The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.

Other real estate owned is carried at the lower of historical cost or fair value less costs to sell. An appraisal is obtained at the time the Bank acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment is recorded along with a corresponding reduction in the book carrying value of the property.

The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Generally, the third party appraisals apply the “market approach,” which is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3.

Fair Values of Financial Instruments.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments.

Cash and Cash Equivalents including Interest Bearing Time Deposits with Financial Institutions.

The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.

30

Securities Available-for-Sale.

Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans Receivable.

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.

Other equity securities.

These are mostly Federal Reserve Bank stock and Federal Home Loan Bank stock, carried in Other Assets. They are not traded, and not available for sale, and have no fair market value.

Deposit liabilities.

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.

Federal Home Loan Bank Advances.

The fair values of Federal Home Loan Bank Advances are based on discounted cash flows. The discount rate is equal to the market rate currently offered on similar products.

Note payable.

The fair value of the note payable is based on the current balance outstanding The fair value is calculated on discounted cash flows. The discount rate is equal to the market rate offered on similar products. 

Accrued Interest Receivable and Payable

The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.

The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.

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The Bank has excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-A), such as Bank premises and equipment, deferred taxes and other liabilities. In addition, the Bank has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

The following table provides summary information on the estimated fair value of financial instruments at June 30, 2015:  

June 30, 2015	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	91,662	$	91,662	$	91,662
Interest-bearing time deposits with financial institutions		2,138		2,138			$	2,138
Securities available for sale		295,171		295,171		6,019		289,152
Loans		581,905		582,378					$	582,378
Other equity securities		6,069		6,069						6,069
Accrued interest receivable		3,909		3,909				3,909
Financial liabilities:
Deposits		893,140		893,485				893,485
Note payable		5,250		5,250				5,250
Accrued interest payable		204		204				204
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,453						1,453

The carrying amount of loans includes $6,020,000 of nonaccrual loans (loans that are not accruing interest) as of June 30, 2015. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.

The following table provides summary information on the estimated fair value of financial instruments at December 31, 2014:

32

December 31, 2014	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,978	$	14,978	$	14,978
Interest-bearing time deposits with financial institutions		2,784		2,813			$	2,813
Securities available for sale		264,881		264,881		3,958		260,923
Loans		593,864		594,524					$	594,524
Other equity securities		5,769		5,769						5,769
Accrued interest receivable		3,725		3,725				3,725
Financial liabilities:
Deposits		792,194		792,472				792,472
Federal Home Loan Bank advances		9,000		9,000				9,000
Note payable		5,550		5,550				5,550
Accrued interest payable		182		182				182
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,449						1,449

The carrying amount of loans includes $5,648,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2014. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information and Uncertainties Regarding Future Financial Performance.

This report, including management’s discussion below, concerning earnings and financial condition, contains “forward-looking statements”. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Company’s future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:

Increased Competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products and competitive market pricing, which could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins. These factors could reduce our ability to attract new deposits and loans and leases.

Liquidity Risk. The stability of funding sources and continued availability of borrowings; our ability to raise capital or incur debt on reasonable terms.

33

Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions over an extended period of time could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for possible loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Company’s reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.

Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies and conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Open Market Committee (“FOMC”) monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings. In addition, deterioration in economic conditions that could result in increased loan and lease losses.

Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, liquidity requirements, and the risks associated with concentration in real estate related loans could adversely affect earnings by reducing yields on earning assets or increasing operating costs.

Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.

Critical Accounting Policies And Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to its loans and allowance for loan losses. The Company bases its estimates on current market conditions, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. The Company believes the following critical accounting policy requires significant judgments and estimates used in the preparation of the consolidated financial statements.

Allowance for Loan Losses

The allowance for loan losses is periodically evaluated for adequacy by management. Factors considered include the Company’s loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrower’s ability to repay, regulatory policies, and the estimated value of underlying collateral. The evaluation of the adequacy of the allowance is based on the above factors along with prevailing and anticipated economic conditions that may impact our borrowers’ ability to repay their loans. Determination of the allowance is based upon objective and subjective judgments by management from the information currently available. Adverse changes in information could result in higher than expected charge-offs and loan loss provisions.

34

Goodwill

Goodwill arises when the Company’s purchase price exceeds the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Company’s consolidated statements of earnings. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss.

Other Than Temporary Impairment

Other than temporary impairment (“OTTI”) is triggered if the Company has the intent to sell the security, it is likely that it will be required to sell the security before recovery, or if the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security or it is likely it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the security and it is not likely that the Company will be required to sell the security but the Company does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings as an OTTI. The credit loss is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected of a security. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment loss related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, would be recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are to be presented as a separate category within OCI.

For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated accordingly based on the procedures described above.

Provision for and Deferred Income Taxes

The Company is subject to income tax laws of the United States, its states, and the municipalities in which it operates. The Company considers its income tax provision methodology to be critical, as the determination of current and deferred taxes based on complex analyses of many factors including interpretation of federal and state laws, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial standards. Actual results could differ significantly from the estimates due to tax law interpretations used in determining the current and deferred income tax liabilities. Additionally, there can be no assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state tax authorities.

35

Recent Accounting Pronouncements

In January 2014, FASB issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this ASU using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted.

The adoption of this update did not have a significant impact on the Company’s consolidated financial statements.

In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-01 Accounting for Investments in Qualified Affordable Housing Projects. This ASU provides “guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit.” It allows the proportional amortization method to be used by a reporting entity if certain conditions are met. The ASU also defines when a qualified affordable housing project through a limited liability entity should be tested for impairment. If a qualified affordable housing project does not meet the conditions for using the proportional amortization method, the investment should be accounted for using an equity method investment or a cost method investment. The ASU is effective for fiscal years beginning after December 15, 2014, and interim periods therein. The Company will continue to account for our low-income housing tax credit investments using the equity method subsequent to the adoption of ASU 2014-01 and does not expect any impact on the Company’s consolidated financial statements.

Earnings Analysis

Net earnings available to common stockholders for the quarter ended June 30, 2015 were $2,071,000, compared to net earnings available to common stockholders of $1,629,000 for the quarter ended June 30, 2014, an increase of 27%. Net earnings available to common stockholders for the six months ended June 30, 2015 were $3,870,000, an increase of $577,000 from the same period in 2014.

Net interest income for the quarter ended June 30, 2015 was $8,705,000, compared to $8,712,000 for the quarter ended June 30, 2014, a decrease of $7,000, or 0.08%. Net interest income for the six months ended June 30, 2015 was $17,259,000, compared to $17,220,000 for the six months ended June 30, 2014.

36

The following tables present an analysis of net interest income and average earning assets and liabilities for the three-and six-month periods ended June 30, 2015 compared to the three-and six-month periods ended June 30, 2014.

TABLE 1	NET INTEREST INCOME AND AVERAGE BALANCES
	FNB BANCORP AND SUBSIDIARY
	Three months ended June 30,
	2015							2014
(Dollar amounts in thousands)					Annualized							Annualized
	Average				Average			Average				Average
	Balance		Interest		Yield			Balance		Interest		Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)	$	590,872	$	7,855		5.39	%	$	568,329	$	7,897		5.64	%
Taxable securities		180,977		843		1.89	%		188,807		851		1.83	%
Nontaxable securities (3)		97,474		786		3.27	%		73,331		657		3.63	%
Fed funds sold		—		—		n/a			5		—		n/a
Interest time deposits other financial institutions		2,493		13		2.11	%		4,569		27		2.40	%
Total interest earning assets		871,816		9,497		4.42	%		835,041		9,432		4.58	%
NONINTEREST EARNING ASSETS:
Cash and due from banks		42,613							22,815
Premises		10,647							12,544
Other assets		28,117							28,417
Total noninterest earning assets		81,377							63,776
TOTAL ASSETS	$	953,193						$	898,817
INTEREST BEARING LIABILITIES:
Demand, int bearing	$	98,536		30		0.12	%	$	81,566		18		0.09	%
Money market		326,880		349		0.43	%		331,460		314		0.38	%
Savings		76,679		20		0.11	%		66,658		17		0.10	%
Time deposits		105,955		139		0.53	%		109,113		135		0.50	%
FHLB advances		—		—		n/a			7,846		3		0.16	%
Note payable		5,338		57		4.33	%		5,939		68		4.64	%
Fed funds purchased		—		—		n/a			—		—		n/a
Total interest bearing liabilities		613,388		595		0.39	%		602,582		555		0.37	%
NONINTEREST BEARING LIABILITIES:
Demand deposits		228,560							197,312
Other liabilities		11,544							9,860
Total noninterest bearing liabilities		240,104							207,172
TOTAL LIABILITIES		853,492							809,754
Stockholders’ equity		99,701							89,063
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	953,193						$	898,817
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)			$	8,902		4.14	%			$	8,877		4.31	%

1) Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable.

2) Amounts of interest earned included loan fees of $367,000 and $362,000 for the quarters ended June 30, 2015 and 2014, respectively.

3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $197,000 and $165,000 for the quarters ended June 30, 2015 and 2014, respectively, and were derived from nontaxable municipal interest income.

4) The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor.

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TABLE 2	NET INTEREST INCOME AND AVERAGE BALANCES
	FNB BANCORP AND SUBSIDIARY
	Six months ended June 30,
	2015							2014
(Dollar amounts in thousands)					Annualized							Annualized
	Average				Average			Average				Average
	Balance		Interest		Yield			Balance		Interest		Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)	$	589,396	$	15,565		5.33	%	$	565,898	$	15,524		5.53	%
Taxable securities		178,891		1,673		1.89	%		188,552		1,694		1.81	%
Nontaxable securities (3)		89,510		1,472		3.32	%		72,903		1,308		3.62	%
Fed funds sold		—		—		n/a			16		—		n/a
Interest time deposits other financial institutions		2,637		27		2.06	%		4,937		46		1.88	%
Tot interest earning assets		860,434		18,737		4.39	%		832,306		18,572		4.50	%
NONINTEREST EARNING ASSETS:
Cash and due from banks		36,836							19,238
Premises		10,744							12,533
Other assets		28,278							30,134
Tot noninterest earning assets		75,913							61,905
TOTAL ASSETS	$	936,347						$	894,211
Demand, int bearing	$	93,684		48		0.10	%	$	78,936		34		0.09	%
Money market		323,914		638		0.40	%		321,913		599		0.38	%
Savings		73,129		37		0.10	%		65,884		33		0.10	%
Time deposits		105,116		269		0.52	%		114,575		278		0.49	%
FHLB advances		497		1		0.41	%		15,033		12		0.16	%
Note payable		5,414		116		4.32	%		3,152		68		4.35	%
Tot interest bearing liabilities		601,754		1,109		0.37	%		599,493		1,024		0.34	%
NONINTEREST BEARING LIABILITIES:
Demand deposits		223,417							196,324
Other liabilities		12,252							9,531
Tot noninterest bearing liabilities		235,669							205,855
TOTAL LIABILITIES		837,423							805,348
Stockholders’ equity		98,924							88,863
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	936,347						$	894,211
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)			$	17,628		4.13	%			$	17,548		4.25	%

(1) Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable.

(2) Amounts of interest earned included loan fees of $681,000 and $658,000 for the six months ended June 30, 2015 and 2014, respectively.

(3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $562,000 and $328,000 for the six months ended June 30, 2015 and 2014, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income.

(4) The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor.

38

The various components that contributed to changes in net interest income for the three and six months ended June 30, 2015 and 2014 are shown above in Tables 1 and 2. The principal interest earning assets are loans, from a volume as well as from a rate or yield perspective. For the quarter ended June 30, 2015, average loans outstanding represented 67.8% of average earning assets. For the quarter ended June 30, 2014, they represented 68.1% of average assets. For the six months ended June 30, 2015 and 2014, average loans outstanding represented 68.5% and 68.0%, respectively, of average earning assets.

The taxable equivalent yield on average interest earning assets for the quarter ended June 30, 2015 compared to the quarter ended June 30, 2014 decreased from 4.58% to 4.42%,or 16 basis points. Average loans increased by $22,543,000, quarter over quarter, while their yield decreased from 5.64% to 5.39%, or 25 basis points. Interest income on total interest earning assets for the quarter increased $65,000 or 0.69% on a fully-taxable equivalent basis.

New customer deposits have been primarily in DDA, NOW and Money Market accounts during the first six months of 2015. The low rates being offered on term deposits coupled with the possible increase in short term rates by the FOMC are, in part, the underlying reason for this migration. In addition, during the second quarter of 2015, the Company received deposits from two customers that totaled $18.5 million in DDA accounts and $50 million in Money Market accounts. The DDA deposit is expected to leave the Bank in its entirety, early in the third quarter, 2015.

For the six months ended June 30, 2015 compared to the six months ended June 30, 2014, interest income on interest earning assets increased $165,000 or 0.9% on a fully-taxable equivalent basis, and average earning assets increased $28,128,000, or 3.4%. Average loans increased by $23,498,000, or 4.2%. Interest on loans increased $41,000 or 0.3%, while the yield decreased 20 basis points, or 3.6%. The cost on total interest bearing liabilities increased from 0.34% to 0.37%. Time deposit averages decreased $9,459,000 or 8.3%. Their yield increased 3 basis points, or 6.1%. Money market deposit average balances increased $2,001,000, or 0.6%, and their cost increased $39,000, or 6.5%.

For the three and six month periods ended June 30, 2015 and June 30, 2014, respectively, the following tables show the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and b) changes in rate (changes in rate times the prior year’s volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.

39

Table 3	FNB BANCORP AND SUBSIDIARY
	RATE/VOLUME VARIANCE ANALYSIS
	Three Months Ended June 30,
(Dollar amounts in thousands)	2015 Compared to 2014
				Variance
	Interest			Attributable to
	Income/Expense			Rate			Volume
INTEREST EARNING ASSETS
Loans	$	(42	)	$	(342	)	$	300
Taxable securities		(8	)		29			(37	)
Nontaxable securities (1)		129			(66	)		195
Interest on time deposits with other financial institutions		(14	)		(2	)		(12	)
Total	$	65		$	(381	)	$	446
INTEREST BEARING LIABILITIES
Demand deposits	$	(12	)	$	(8	)	$	(4	)
Money market		(35	)		(40	)		5
Savings deposits		(3	)		—			(3	)
Time deposits		(4	)		(8	)		4
FHLB advances		3			—			3
Note payable		11			4			7
Total	$	(40	)	$	(52	)	$	12
NET INTEREST INCOME	$	25		$	(433	)	$	458

(1)Includes tax equivalent adjustment of $197,000 and $165,000 in the three months ended June 30, 2015 and June 30, 2014, respectively.

40

Table 4	FNB BANCORP AND SUBSIDIARY
	RATE/VOLUME VARIANCE ANALYSIS
	Six Months Ended June 30,
(Dollar amounts in thousands)	2015 Compared to 2014
				Variance
	Interest			Attributable to
	Income/Expense			Rate			Volume
INTEREST EARNING ASSETS
Loans	$	41		$	(604	)	$	645
Taxable securities		(21	)		66			(87	)
Nontaxable securities (1)		164			(109	)		273
Interest on time deposits with other financial institutions		(19	)		5			(24	)
Total	$	165		$	(642	)	$	807
INTEREST BEARING LIABILITIES
Demand deposits	$	(13	)	$	(7	)	$	(6	)
Money market		(39	)		(35	)		(4	)
Savings deposits		(4	)		—			(4	)
Time deposits		9			(14	)		23
FHLB advances		10			—			10
Note payable		(48	)		1			(49	)
Total	$	(85	)	$	(55	)	$	(30	)
NET INTEREST INCOME	$	80		$	(697	)	$	777

(1)Includes tax equivalent adjustment of $562,000 and $328,000 in the six months ended June 30, 2015 and June 30, 2014, respectively.

41

Noninterest income

The following table shows the principal components of noninterest income for the periods indicated.

Table 5	NONINTEREST INCOME
	Three months
	ended June 30,				Variance
(Dollar amounts in thousands)	2015		2014		Amount			Percent
Service charges	$	627	$	647	$	(20	)		-3.1	%
Net gain on available-for-sale of securities		152		28		124			442.9	%
Bank owned life insurance policy earnings		87		90		(3	)		-3.3	%
Other income		401		215		186			86.5	%
Total noninterest income	$	1,267	$	980	$	287			29.3	%
	Six months
	ended June 30,				Variance
(Dollars in thousands)	2015		2014		Amount			Percent
Service charges	$	1,238	$	1,284	$	(46	)		-3.6	%
Gain on sale of available-for-securities		221		39		182			466.7	%
Bank owned life insurance policy earnings		171		186		(15	)		-8.1	%
Other income		715		517		198			38.3	%
Total noninterest income	$	2,345	$	2,026	$	319			15.7	%

Noninterest income consists mainly of service charges on deposits, and earnings on bank owned life insurance policies. The Bank service charges were down during the second quarter and year to date of June 30, 2015 when compared to the same period during 2014 due primarily to a decrease in our overdraft fees. During the second quarter of 2015, the Bank sold or had called $7,645,000 in investment securities for a pre-tax gain of $152,000. During the first six months of 2015, the Bank sold or had called $21,228,000 in investment securities for a pre-tax gain of $221,000. During the first six months of 2014, the Company sold approximately $5,398,000 in investment securities at a pre-tax net gain of $39,000. The sale proceeds were reinvested in a variety of investment securities during the same period. Other income includes income on equity securities, Which includes income on Federal Home Loan Bank stock (“FHLB”). The FHLB gave a one-time dividend of $157,000 in the second quarter of 2015, which affected the quarter and year to date. Within Other Income, interest and dividends on equity securities was $272,000 for the three months ended June 30, 2015, compared to $83,000 for the same period in 2014. Interest and dividends for the six months ended June 30, 2015 was $387,000, compared to $200,000 for the same period in 2014.

42

Noninterest expense

The following table shows the principal components of noninterest expense for the periods indicated.

Table 6	NONINTEREST EXPENSE
	Three months
	ended June 30,						Variance
(Dollar amounts in thousands)	2015			2014			Amount			Percent
Salaries and employee benefits	$	4,111		$	4,177		$	(66	)		-1.6	%
Occupancy expense		646			694			(48	)		-6.9	%
Equipment expense		410			406			4			1.0	%
Professional fees		354			501			(147	)		-29.3	%
FDIC assessment		150			180			(30	)		-16.7	%
Telephone, postage & supplies		256			313			(57	)		-18.2	%
Advertising expense		170			136			34			25.0	%
Data processing expense		147			134			13			9.7	%
Low income housing expense		71			110			(39	)		-35.5	%
Surety insurance		88			67			21			31.3	%
Directors expense		72			63			9			14.3	%
Other real estate owned expense, net		(6	)		11			(17	)		-154.5	%
Loss on sale of other real estate owned, net		—			60			(60	)		100.0	%
Other expense		320			358			(38	)		-10.6	%
Total noninterest expense	$	6,789		$	7,210		$	(421	)		-5.8	%
	NONINTEREST EXPENSE
	Six months
	ended June 30,						Variance
(Dollar amounts in thousands)	2015			2014			Amount			Percent
Salaries and employee benefits	$	8,413		$	8,395		$	18			0.2	%
Occupancy expense		1,314			1,374			(60	)		-4.4	%
Equipment expense		815			797			18			2.3	%
Professional fees		741			1,032			(291	)		-28.2	%
FDIC assessment		300			360			(60	)		-16.7	%
Telephone, postage & supplies		545			599			(54	)		-9.0	%
Advertising expense		269			221			48			21.7	%
Data processing expense		281			279			2			0.7	%
Low income housing expense		142			220			(78	)		-35.5	%
Surety insurance		176			134			42			31.3	%
Directors expense		144			126			18			14.3	%
Other real estate owned expense, net		(6	)		88			(94	)		-106.8	%
Gain on sale of other real estate owned, net		—			(220	)		(220	)		100.0	%
Other expense		598			647			(49	)		-7.6	%
Total noninterest expense	$	13,732		$	14,052		$	(320	)		-2.3	%

Noninterest expense consists mainly of salaries and employee benefits. For the three months ended June 30, 2015 compared to three months ended June 30, 2014, salaries and benefits represented 61% and 58% of total noninterest expenses. During the six months ended June 30, 2015 compared to the six months ended June 30, 2014, salaries and benefits represented 61% and 60% of total noninterest expenses. During the first three and six months of 2015, reductions in professional fees and other real estate owned expenses are attributable primarily to improving credit quality within the loan portfolio which has resulted in less costs related to credit collection and loan workout expenses.

43

Provision for Loan Losses

During the six months ended June 30, 2015, there was a provision for loan losses of $150,000 compared to $75,000 for the same period in 2014. The allowance for loan losses was $9,836,000 or 1.69% of total gross loans at June 30, 2015, compared to $9,700,000 or 1.63% of total gross loans at December 31, 2014. During the six months ended June 30, 2015, $56,000 in loans were charged off, compared to $276,000 in the same period in 2014. During the 3 months ended June 30, 2015, there was a provision for loan losses of $75,000, and none for the same period in 2014. The allowance for loan losses is maintained at a level considered adequate for management to provide for probable loan losses inherent in the loan portfolio as of June 30, 2015.

Income Taxes

The effective tax rate for the quarter ended June 30, 2015 was 33.4% compared to 34.4% for the quarter ended June 30, 2014. The effective tax rate for the six months ended June 30, 2015 and June 30, 2014 was an effective tax rate of 32.4% and 32.4%, respectively. Tax preference items which have a significant effect on our effective tax rate are changing amounts invested in tax-advantaged securities, available Low Income Housing Credits, and amounts of interest income on tax advantaged municipal debt securities. The reduction in the income tax rate for the second quarter of 2015 was primarily related to increased investment in nontaxable interest earning investments in state and political subdivision municipal debt securities.

Asset and Liability Management

Ongoing management of the Company’s interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Company’s position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired interest rate sensitivity position including the sale or purchase of assets and product pricing.

In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Company’s ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from the Company’s customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Company’s liquidity sources at June 30, 2015, are adequate to meet its operating needs in 2015 and our liquidity positions are sufficient to meet our liquidity needs in the near term.

44

Financial Condition

Assets. Total assets increased to $1,009,828,000 at June 30, 2015 from $917,164,000 at December 31, 2014, an increase of $92,664,000. The principal source of this increase was an increase of $76,684,000 in cash and due from banks, and an increase of $30,290,000 in securities available for sale. Asset growth occurs primarily from the retention of net earnings and increases in the deposit portfolio or our borrowing positions. The majority of the increase in the deposit base is reflected in the increase in our cash and due from banks. A single customer relationship accounted for about $18.5 million on the DDA increase, which is expected to disburse early in the third quarter. There was also a $50 million deposit to a Money Market account from a single customer relationship.

Loans. Gross loans (before net loan fees) at June 30, 2015 were $581,905,000, a decrease of $11,959,000 or 2.01% from December 31, 2014. Gross commercial real estate loans increased $11,876,000, real estate construction loans decreased $7,123,000, real estate multi- family loans increased $2,211,000, real estate loans secured by 1 to 4 family residences decreased $832,000, commercial and industrial loans decreased $13,917,000, and consumer loans increased by $248,000. The loan portfolio breakdown was as follows: 

TABLE 7	LOAN PORTFOLIO
	June 30			Percent			December 31			Percent
(Dollar amounts in thousands)	2015						2014
Commercial real estate	$	330,303			57	%	$	318,427			54	%
Real estate construction		32,648			6	%		39,771			7	%
Real estate multi family		51,613			9	%		53,824			9	%
Real estate 1 to 4 family		127,900			22	%		128,732			22	%
Commercial and industrial		37,745			8	%		51,662			9	%
Consumer loans		1,696			—	%		1,448			—	%
Gross loans		581,905			100	%		593,864			100	%
Net deferred loan fees		(404	)		—	%		(449	)		—	%
Total	$	581,501			100	%	$	593,415			100	%

Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Bank’s loan portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is deter-mined by internally generating credit quality ratings, reviewing economic conditions in the Company’s market area, and considering the Company’s historical loan loss experience. The Company’s management considers changes in national and local economic conditions, as well as the condition of various market segments. It also reviews any changes in the nature and volume of the portfolio. Management watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. It also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.

A summary of transactions in the allowance for loan losses for the six months ended June 30, 2015, and June 30, 2014, respectively is as follows:

45

TABLE 8	ALLOWANCE FOR LOAN LOSSES
	Six months ended			Six months ended
(Dollar amounts in thousands)	June 30, 2015			June 30, 2014
Balance, beginning of period	$	9,700		$	9,879
Provision for loan losses		150			75
Recoveries		42			1,181
Amounts charged off		(56	)		(276	)
Balance, end of period	$	9,836		$	10,859

During the six months ended June 30, 2015, there was a provision of $150,000, compared to $75,000 for the same period in 2014. Loan charge-off levels have declined significantly year over year, and remain close to historic norms.

In management’s judgment, the allowance is adequate to absorb probable losses currently inherent in the loan portfolio at June 30, 2015. However, changes in prevailing economic conditions in the Company’s markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.

The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.

Nonperforming assets. Nonperforming assets consist of nonaccrual loans, loans that are 90 days or more past due but are still accruing interest and other real estate owned. At June 30, 2015, there was $6,826,000 in nonperforming assets, compared to $6,411,000 at December 31, 2014. Nonaccrual loans were $6,020,000 at June 30, 2015, compared to $5,648,000 at December 31, 2014. There were no loans past due 90 days and still accruing at either date.

Management intends to aggressively market our Other Real Estate Owned. While management believes this property will sell, there can be no assurance that the property will sell quickly given the current real estate market, nor can the expected sales price be accurately predicted.

Deposits. Total deposits at June 30, 2015, were $893,140,000 compared to $792,194,000 on December 31, 2014. Of these totals, noninterest-bearing demand deposits were $249,420,000 or 27.9% of the total on June 30, 2015, and $202,811,000 or 25.6% on December 31, 2014. Time deposits were $104,935,000 on June 30, 2015, and $105,159,000 on December 31, 2014.

The following table sets forth the maturity schedule of the time certificates of deposit on June 30, 2015:

46

TABLE 9
(Dollar amounts in thousands)	Under		$250,000
Maturities	$250,000		or more		Total
Three months or less	$	12,802	$	3,111	$	15,913
Over three through six months		13,001		23,206		36,207
Over six through twelve months		23,817		11,400		35,217
Over twelve months		12,316		5,282		17,598
Total	$	61,936	$	42,999	$	104,935

Regulatory Capital. The following table shows the risk-based capital ratios and leverage ratios at June 30, 2015 and December 31, 2014 for the Bank:

TABLE 10								Minimum
	June 30,			December 31,				fully phased-in Capitalized”
Regulatory Capital Ratios	2015			2014				Requirements
Total Regulatory Capital Ratio		13.88	%		15.13	%	≥		10.50	%
Tier 1 Capital Ratio		12.63	%		13.88	%	≥		8.50	%
Leverage Ratios		10.69	%		10.79	%	≥		8.50	%
Common Equity Tier 1 Capital Ratio		12.63	%		N/A		≥		7.00	%

Liquidity. Liquidity is a measure of the Company’s ability to convert assets into cash with minimal loss. As of June 30, 2015, liquid assets were $388,971,000, or 38.5% of total assets. As of December 31, 2014, liquid assets were $282,643,000, or 30.8% of total assets. Liquidity consists of cash and due from banks, federal funds sold, and securities available-for-sale. The Company’s primary uses of funds are loans, and the primary sources of funds are deposits. The Company also has federal funds borrowing facilities totaling $30,000,000, a Federal Home Loan Bank line up to 30% of total eligible assets, and a Federal Reserve Bank borrowing facility.

The relationship between total net loans and total deposits is a useful additional measure of liquidity. A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On June 30, 2015, and December 31, 2014, respectively, net loans were at 64.0% and 73.7% of deposits. See the Consolidated Statements of Cash Flows under Item I for further information on the Company’s cash flows.

Off-Balance Sheet Items

The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of June 30, 2015 and December 31, 2014, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $145,303,000 and $144,886,000 at June 30, 2015 and December 31, 2014, respectively. As a percentage of net loans, these off-balance sheet items represent 25.42% and 24.82% respectively. The Company does not expect all commitments to be funded.

47

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest.

Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Company’s interest earning assets and deposits.

Item 4. Controls and Procedures.

(a)Disclosure Controls and Procedures. The Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act of 1934 (the “Act”) as of the end of the Company’s fiscal quarter ended June 30, 2015. This evaluation was carried out under the supervision and with the participation of the Company’s Chief Executive Officer (principal executive officer) Chief Financial Officer (principal financial and accounting officer) and other members of the Company’s senior management. The Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer) concluded that the Company’s disclosure controls and procedures are effective in ensuring that material information required to be disclosed by the Company in the reports it files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow timely decisions required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management of FNB Bancorp (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, and for reporting an assessment of the effectiveness of the internal control over financial reporting as of June 30, 2015. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparations of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transaction and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

48

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There are no material legal proceedings adverse to the Company or First National Bank to which any director, officer, affiliate of the Company, or 5% stockholder of the Company, or any associate of any such director, officer, affiliate or 5% stockholder of the Company are a party, and none of the foregoing persons has a material interest adverse to the Company or First National Bank.

From time to time, the Company and/or First National Bank are a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management is not aware of any material pending legal proceedings to which either it or First National Bank may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of the Company and First National Bank, taken as a whole.

Item 1A. Risk Factors

During the course of normal operations, the Bank and the Company manage a variety of risks including, but not limited to, credit risk, operational risk, interest rate risk and regulatory compliance risk. For a more complete discussion of the risk factors facing the Bank and the Company, please refer to the section entitled “Item 1A – Risk Factors” in the Company’s December 31, 2014 Form 10K.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law. The purpose of this legislation was to bring about regulatory changes and oversight that would help stop past abuses from recurring in the future. This legislation gives new powers to the FDIC and the Federal Reserve Bank that they may use in the execution of their duties as regulators and overseers of the banking industry. It also created a new federal consumer protection agency named the Consumer Financial Protection Bureau (“CFPB”). All existing consumer laws and regulations will be transferred to the CFPB. This Act is expected to enable regulators to issue numerous new banking regulations and requirements that have not yet been fully developed or promulgated. The ultimate effect the Act has on the Company’s operations will ultimately be determined by the significance of the new banking regulations that are issued as a result of the Act.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

49

Item 6.	Exhibits
	Exhibits

31: Rule 13a-14(a)/15d-14(a) Certifications

32: Section 1350 Certifications

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	FNB BANCORP
		(Registrant)
Dated:
August 7, 2015.	By:	/s/ Thomas C. McGraw
		Thomas C. McGraw
		Chief Executive Officer
		(Authorized Officer)
		(Principal Executive Officer)
	By:	/s/ David A. Curtis
		David A. Curtis
		Senior Vice President
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

50

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certifications

                  I, Thomas C. McGraw, certify that:

1.               I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.               The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

        a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        c)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d)      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.               The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

        a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

        b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2015.	/s/ Thomas C. McGraw
	Thomas C. McGraw
	Chief Executive Officer

51

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certifications

                 I, David A. Curtis, certify that:

1               I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;

2.              Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.              The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial instruments for external purposes in accordance with generally accepted accounting principles;

        c)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d)      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.              The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

        a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

        b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2015.	/s/ David A Curtis,
	David A Curtis,
	Senior Vice President and
	Chief Financial Officer

52

EX-32

Exhibit 32

Section 1350 Certifications

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of FNB Bancorp, a California corporation (the “Company”), does hereby certify that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 7, 2015.	/s/ Thomas C. McGraw
	Thomas C. McGraw
	Chief Executive Officer
Dated: August 7, 2015.	/s/ David A. Curtis
	David A. Curtis
	Senior Vice President and
	Chief Financial Officer

A signed original of this statement required by Section 906 has been provided to FNB Bancorp and will be retained by FNB Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

53

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E. LOANS, (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Investment on impaired loans	$ 18,963	$ 21,963	$ 19,211
Interest income on impaired loans recognized	243	184	468	$ 455	$ 982
Interest on impaired loans not collected	92	64	198	$ 214	398
Cumulative amount of unpaid interest on impaired loans			3,142		3,829
Nonaccrual loans	6,020		6,020		5,648
Interest paid on impaired loans	243	$ 184
Total outstanding principal of troubled debt restructured loans	16,025		16,025		16,517
Commercial real estate
Interest income on impaired loans recognized			255		562
Nonaccrual loans	2,227		2,227		2,111
Total outstanding principal of troubled debt restructured loans	9,570		9,570		9,498
Real estate construction
Total outstanding principal of troubled debt restructured loans	1,295		1,295
Real Estate 1 to 4 family
Interest income on impaired loans recognized			100		178
Nonaccrual loans	1,727		1,727		1,181
Total outstanding principal of troubled debt restructured loans	3,450		3,450		3,661
Commercial and industrial
Interest income on impaired loans recognized			41		87
Nonaccrual loans	2,007		2,007		2,292
Total outstanding principal of troubled debt restructured loans	$ 1,710		$ 1,710		2,054
Real Estate Construction
Total outstanding principal of troubled debt restructured loans					$ 1,304

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E. LOANS, Summary of Loan as follows (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Gross loans	$ 581,905	$ 593,864
Net deferred loan fees	(404)	(449)
Allowance for loan losses	(9,836)	(9,700)
Net loans	571,665	583,715
Commercial real estate
Gross loans	330,303	318,427
Real estate construction
Gross loans	32,648	39,771
Real Estate Multi family
Gross loans	51,613	53,824
Real Estate 1 to 4 family
Gross loans	127,900	128,732
Commercial and industrial
Gross loans	37,745	51,662
Consumer
Gross loans	1,696	1,448
FNB Bancorp Originated
Gross loans	525,974	533,979
Net deferred loan fees	(404)	(449)
Allowance for loan losses	(9,836)	(9,700)
Net loans	515,734	523,830
FNB Bancorp Originated | Commercial real estate
Gross loans	298,454	285,252
FNB Bancorp Originated | Real estate construction
Gross loans	30,744	37,827
FNB Bancorp Originated | Real Estate Multi family
Gross loans	41,620	43,379
FNB Bancorp Originated | Real Estate 1 to 4 family
Gross loans	123,811	123,522
FNB Bancorp Originated | Commercial and industrial
Gross loans	29,649	42,551
FNB Bancorp Originated | Consumer
Gross loans	1,696	1,448
PNCI
Gross loans	$ 54,610	58,562
Net deferred loan fees		0
Allowance for loan losses		0
Net loans	$ 54,610	58,562
PNCI | Commercial real estate
Gross loans	30,528	31,852
PNCI | Real estate construction
Gross loans	1,904	1,944
PNCI | Real Estate Multi family
Gross loans	9,993	10,445
PNCI | Real Estate 1 to 4 family
Gross loans	4,089	5,210
PNCI | Commercial and industrial
Gross loans	$ 8,096	9,111
PNCI | Consumer
Gross loans		0
PCI
Gross loans	$ 1,321	1,323
Net deferred loan fees		0
Allowance for loan losses		0
Net loans	$ 1,321	1,323
PCI | Commercial real estate
Gross loans	$ 1,321	1,323
PCI | Real estate construction
Gross loans		0
PCI | Real Estate Multi family
Gross loans		0
PCI | Real Estate 1 to 4 family
Gross loans		0
PCI | Commercial and industrial
Gross loans		0
PCI | Consumer
Gross loans		$ 0

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G. FAIR VALUE MEASUREMENT (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
FAIR VALUE MEASUREMENT TABLES
Nonaccrual loans	$ 6,020	$ 5,648

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B. STOCK OPTION PLANS

6 Months Ended

Jun. 30, 2015

Share-based Compensation [Abstract]

STOCK OPTION PLANS

Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined using an option pricing model that considers the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.

The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.

The amount of compensation expense for options recorded in the quarters ended June 30, 2015 and 2014 was $61,000 and $69,000, respectively. The amount of compensation expense recorded for the six months ended June 30, 2015 and 2014 was $122,000 and $139,000, respectively. There was no income tax benefit recognized from stock options exercised during the quarter and year to date ended June 30, 2015, but there was an income tax benefit recognized for stock options exercised of $245,000 for the quarter and year to date ended June 30, 2014.

The intrinsic value for options exercised during the six months ended June 30, 2015 was $625,000. The intrinsic value for options exercisable as of June 30, 2015 was $3034,000. The intrinsic value for options exercised during the six months ended June 30, 2014 was $259,000. The intrinsic value of options exercisable at June 30, 2014 was $2,897,000. There were no options granted for the first six months ended June 30, 2015 and 2014, respectively.

The amount of total unrecognized compensation expense related to non-vested options at June 30, 2015 was $611,000, and the weighted average period over which it will be amortized is 3.2 years.

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E. LOANS, Nonaccrual (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Loans, Nonaccrual Status	$ 6,020	$ 5,648
Commercial real estate
Loans, Nonaccrual Status	2,227	2,111
Real Estate 1 to 4 family
Loans, Nonaccrual Status	1,727	1,181
Commercial and industrial
Loans, Nonaccrual Status	2,007	2,292
Consumer
Loans, Nonaccrual Status	$ 59	$ 64

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E. LOANS, Impaired Loans Allowance (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
With no related allowance, Recorded Investment	$ 8,799		$ 8,799		$ 9,011
With no related allowance, Unpaid Principal Balance	10,111		10,111		10,565
With no related allowance recorded, Related Allowance			0		0
With no related allowance, Average Recorded Investment			8,831		8,486
With no related allowance, Income Recognized			242		575
With an allowance recorded, Recorded Investment	9,949		9,949		9,604
With an allowance recorded, Unpaid Principal Balance	10,320		10,320		9,989
With an allowance recorded, Related Allowance	903		903		766
With an allowance recorded, Average Impaired Balance			10,193		9,860
With an allowance recorded, Income Recognized			226		407
Recorded Investment	18,748		18,748		18,615
Unpaid Principal Balance	20,431		20,431		20,554
Related Allowance	903		903		766
Average Recorded Investment			19,024		18,346
Income Recognized	243	$ 184	468	$ 455	982
Commercial real estate
With no related allowance, Recorded Investment	4,411		4,411		4,462
With no related allowance, Unpaid Principal Balance	5,292		5,292		5,333
With no related allowance recorded, Related Allowance			0		0
With no related allowance, Average Recorded Investment			4,437		4,473
With no related allowance, Income Recognized			125		304
With an allowance recorded, Recorded Investment	5,133		5,133		5,068
With an allowance recorded, Unpaid Principal Balance	5,138		5,138		5,071
With an allowance recorded, Related Allowance	133		133		101
With an allowance recorded, Average Impaired Balance			5,172		5,127
With an allowance recorded, Income Recognized			130		258
Recorded Investment	9,544		9,544		9,530
Unpaid Principal Balance	10,430		10,430		10,404
Related Allowance	133		133		101
Average Recorded Investment			9,609		9,600
Income Recognized			255		562
Commercial real estate construction
With no related allowance, Recorded Investment	2,364		2,364		2,373
With no related allowance, Unpaid Principal Balance	2,547		2,547		2,556
With no related allowance recorded, Related Allowance			0		0
With no related allowance, Average Recorded Investment			2,368		1,846
With no related allowance, Income Recognized			68		150
With an allowance recorded, Recorded Investment	0		0		0
With an allowance recorded, Unpaid Principal Balance	0		0		0
With an allowance recorded, Related Allowance	0		0		0
With an allowance recorded, Average Impaired Balance			0		0
With an allowance recorded, Income Recognized			0		0
Recorded Investment	2,364		2,364		2,373
Unpaid Principal Balance	$ 2,547		$ 2,547		2,556
Related Allowance					0
Average Recorded Investment			$ 2,368		1,846
Income Recognized			68		150
Real Estate 1 to 4 family
With no related allowance, Recorded Investment	$ 1,478		1,478		1,594
With no related allowance, Unpaid Principal Balance	1,481		1,481		1,737
With no related allowance recorded, Related Allowance			0		0
With no related allowance, Average Recorded Investment			1,283		1,379
With no related allowance, Income Recognized			31		67
With an allowance recorded, Recorded Investment	3,365		3,365		2,739
With an allowance recorded, Unpaid Principal Balance	3,383		3,383		2,754
With an allowance recorded, Related Allowance	526		526		432
With an allowance recorded, Average Impaired Balance			3,397		2,759
With an allowance recorded, Income Recognized			69		111
Recorded Investment	4,843		4,843		4,333
Unpaid Principal Balance	4,864		4,864		4,491
Related Allowance	526		526		432
Average Recorded Investment			4,680		4,138
Income Recognized			100		178
Commercial and industrial
With no related allowance, Recorded Investment	546		546		582
With no related allowance, Unpaid Principal Balance	791		791		939
With no related allowance recorded, Related Allowance			0		0
With no related allowance, Average Recorded Investment			743		788
With no related allowance, Income Recognized			18		54
With an allowance recorded, Recorded Investment	1,392		1,392		1,733
With an allowance recorded, Unpaid Principal Balance	1,740		1,740		2,100
With an allowance recorded, Related Allowance	236		236		225
With an allowance recorded, Average Impaired Balance			1,563		1,907
With an allowance recorded, Income Recognized			23		33
Recorded Investment	1,938		1,938		2,315
Unpaid Principal Balance	2,531		2,531		3,039
Related Allowance	236		236		225
Average Recorded Investment			2,306		2,695
Income Recognized			41		87
Consumer
With no related allowance, Recorded Investment	0		0		0
With no related allowance, Unpaid Principal Balance	0		0		0
With no related allowance recorded, Related Allowance			0		0
With no related allowance, Average Recorded Investment			0		0
With no related allowance, Income Recognized			0		0
With an allowance recorded, Recorded Investment	59		59		64
With an allowance recorded, Unpaid Principal Balance	59		59		64
With an allowance recorded, Related Allowance	8		8		8
With an allowance recorded, Average Impaired Balance			61		67
With an allowance recorded, Income Recognized			4		5
Recorded Investment	59		59		64
Unpaid Principal Balance	59		59		64
Related Allowance	$ 8		8		8
Average Recorded Investment			61		67
Income Recognized			$ 4		$ 5

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E. LOANS, Troubled Debt Restructurings (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Troubled debt restructured loans outstanding, accrual status	$ 11,730	$ 12,158
Troubled debt restructured loans outstanding, nonaccrual status	4,295	4,359
Total modifications	16,025	16,517
Commercial real estate
Troubled debt restructured loans outstanding, accrual status	7,462	7,407
Troubled debt restructured loans outstanding, nonaccrual status	2,108	2,091
Total modifications	9,570	9,498
Real Estate Construction
Troubled debt restructured loans outstanding, accrual status	1,295	1,304
Troubled debt restructured loans outstanding, nonaccrual status	0	0
Total modifications	1,295	1,304
Real Estate 1 to 4 family
Troubled debt restructured loans outstanding, accrual status	2,973	3,153
Troubled debt restructured loans outstanding, nonaccrual status	477	508
Total modifications	3,450	3,661
Commercial and industrial
Troubled debt restructured loans outstanding, accrual status	0	294
Troubled debt restructured loans outstanding, nonaccrual status	1,710	1,760
Total modifications	$ 1,710	$ 2,054

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E. LOANS, Payment Modification (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)
Number of Modifications	3	1	4
Pre-modification Recorded Investment	$ 1,454	$ 477	$ 2,026
Post-modification Recorded Investment	$ 1,454	$ 477	$ 2,026
Real Estate 1 to 4 family
Number of Modifications		1	1
Pre-modification Recorded Investment		$ 477	$ 572
Post-modification Recorded Investment		$ 477	$ 572
Commercial real estate
Number of Modifications	3		3
Pre-modification Recorded Investment	$ 1,454		$ 1,454
Post-modification Recorded Investment	$ 1,454		$ 1,454

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A. BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2015

BASIS OF PRESENTATION

BASIS OF PRESENTATION

FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo, San Francisco and Santa Clara counties.

All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2014. Results of operations for interim periods are not necessarily indicative of results for the full year. Certain prior year information has been reclassified to conform to current year presentation. The reclassifications had no impact on consolidated net earnings or stockholders’ equity.

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E. LOANS, Credit Quality Indicators Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Pass
Commercial real estate	$ 291,705	$ 281,216
Real estate construction	29,627	38,962
Real estate multi-family	41,620	43,379
Real estate 1 to 4 family	122,603	122,499
Commercial & industrial	29,035	41,394
Consumer loans	1,590	1,384
Totals	516,180	528,834
Commercial real estate	24,709	26,009
Real estate construction	1,904	1,944
Real estate multi-family	9,993	10,445
Real estate 1 to 4 family	3,689	4,810
Commercial & industrial	8,096	9,111
Total	48,391	52,319
Special mention
Commercial real estate	1,883	1,913
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	0	0
Commercial & industrial	0	0
Consumer loans	0	0
Totals	1,883	1,913
Commercial real estate	0	0
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	0	0
Commercial & industrial	0	0
Total	0	0
Sub Standard
Commercial real estate	4,866	2,031
Real estate construction	1,117	1,135
Real estate multi-family	0	0
Real estate 1 to 4 family	1,019	1,023
Commercial & industrial	614	1,157
Consumer loans	106	64
Totals	7,722	5,410
Commercial real estate	5,819	5,843
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	400	0
Commercial & industrial	0	0
Total	6,219	5,843
Doubtful
Commercial real estate	0	92
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	189	0
Commercial & industrial	0	0
Consumer loans	0	0
Totals	189	92
Commercial real estate	0	0
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	0	400
Commercial & industrial	0	0
Total	0	400
Total loans
Commercial real estate	298,454	285,252
Real estate construction	30,744	37,827
Real estate multi-family	41,620	43,379
Real estate 1 to 4 family	123,811	123,522
Commercial & industrial	29,649	42,551
Consumer loans	1,696	1,448
Totals	525,974	533,979
Commercial real estate	30,528	31,852
Real estate construction	1,904	1,944
Real estate multi-family	9,993	10,445
Real estate 1 to 4 family	4,089	5,210
Commercial & industrial	8,096	9,111
Total	54,610	58,562
Commercial real estate	1,321	1,323
Total	$ 1,321	$ 1,323

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollar amounts in thousands) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 91,662	$ 14,978
Interest-bearing time deposits with financial institutions	2,138	2,784
Securities available-for-sale, at fair value	295,171	264,881
Loans, net of allowance for loan losses of $9,836 and $9,700 on June 30, 2015 and December 31, 2014	571,665	583,715
Bank premises, equipment, and leasehold improvements, net	10,527	10,951
Bank owned life insurance	12,681	12,510
Other equity securities	6,069	5,769
Accrued interest receivable	3,909	3,725
Other real estate owned, net	806	763
Goodwill	1,841	1,841
Prepaid expenses	922	1,045
Other assets	12,437	14,202
Total assets	1,009,828	917,164
Deposits
Demand, noninterest bearing	249,420	202,811
Demand, interest bearing	101,693	89,548
Savings and money market	437,092	394,676
Time	104,935	105,159
Total deposits	$ 893,140	792,194
Federal Home Loan Bank advances		9,000
Note Payable	$ 5,250	5,550
Accrued expenses and other liabilities	11,001	13,332
Total liabilities	909,391	820,076
Stockholders' equity
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 4,305,987 shares at June 30, 2015 and 4,259,306 shares at December 31, 2014	67,597	66,791
Retained earnings	31,452	28,729
Accumulated other comprehensive income, net of tax	1,388	1,568
Total stockholders' equity	100,437	97,088
Total liabilities and stockholders' equity	$ 1,009,828	$ 917,164

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Parentheticals) (Dollar amounts in thousands) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Other Comprehensive Earnings Parentheticals
Tax on unrealized holding gain on available-for-sale securities	$ 954	$ 1,034	$ 34	$ 1,754
Tax on reclassification adjustment for gain on available-for-sale	$ 63	$ 11	$ 91	$ 16

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G. FAIR VALUE MEASUREMENT, Nonrecurring basis (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair Value
Commercial real estate	$ 124	$ 381
Residential- 1 to 4 family	213	323
Commercial and Industrial	1,088	1,472
Consumer		56
Total impaired assets measured at fair value	1,425	2,232
Quoted Prices in Active Markets for Identical Assets (Level 1)
Commercial real estate	0	0
Residential- 1 to 4 family	0	0
Commercial and Industrial	0	0
Consumer		0
Total impaired assets measured at fair value	0	0
Other Observable Inputs (Level 2)
Commercial real estate	0	0
Residential- 1 to 4 family	0	0
Commercial and Industrial	0	0
Consumer		0
Total impaired assets measured at fair value	0	0
Significant Unobservable Inputs(Level 3)
Commercial real estate	124	381
Residential- 1 to 4 family	213	323
Commercial and Industrial	1,088	1,472
Consumer		56
Total impaired assets measured at fair value	$ 1,425	$ 2,232

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D. SECURITIES AVAILABLE FOR SALE, Analysis of gross unrealized losses (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Less than 12 months, Total Fair Value	$ 83,081	$ 44,977
Less than 12 months, Unrealized Loss	(862)	(227)
12 months or more, Total Fair Value	28,329	68,128
12 months or more, Unrealized Loss	(448)	(1,109)
Total Fair Value	111,410	113,105
Total Unrealized Loss	$ (1,310)	(1,336)
U.S. Treasury securities
Less than 12 months, Total Fair Value		0
Less than 12 months, Unrealized Loss		0
12 months or more, Total Fair Value	$ 2,034	2,015
12 months or more, Unrealized Loss	(4)	(29)
Total Fair Value	2,034	2,015
Total Unrealized Loss	(4)	(29)
Obligations of U.S. government agencies
Less than 12 months, Total Fair Value	22,189	13,178
Less than 12 months, Unrealized Loss	(71)	(43)
12 months or more, Total Fair Value	6,992	19,116
12 months or more, Unrealized Loss	(55)	(255)
Total Fair Value	29,181	32,294
Total Unrealized Loss	(126)	(298)
Mortgage-backed securities
Less than 12 months, Total Fair Value	15,298	5,056
Less than 12 months, Unrealized Loss	(177)	(10)
12 months or more, Total Fair Value	14,989	36,382
12 months or more, Unrealized Loss	(320)	(651)
Total Fair Value	30,287	41,438
Total Unrealized Loss	(497)	(661)
Obligations of states and political subdivisions
Less than 12 months, Total Fair Value	36,204	8,678
Less than 12 months, Unrealized Loss	(517)	(49)
12 months or more, Total Fair Value	1,831	5,696
12 months or more, Unrealized Loss	(50)	(94)
Total Fair Value	38,035	14,374
Total Unrealized Loss	(567)	(143)
Corporate debt
Less than 12 months, Total Fair Value	9,390	18,065
Less than 12 months, Unrealized Loss	(97)	(125)
12 months or more, Total Fair Value	2,483	4,919
12 months or more, Unrealized Loss	(19)	(80)
Total Fair Value	11,873	22,984
Total Unrealized Loss	$ (116)	$ (205)

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G. FAIR VALUE MEASUREMENT, Financial instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014	Dec. 31, 2013
Financial assets:
Cash and cash equivalents	$ 91,662	$ 14,978	$ 21,682	$ 14,007
Interest-bearing time deposits with financial Institutions	2,138	2,784
Other Equity Securities	295,171
Accrued interest receivable	3,909	3,725
Financial liabilities:
Deposits	893,140	792,194
Notes payable	5,250	5,550
Carrying Amount
Financial assets:
Cash and cash equivalents	91,662	14,978
Interest-bearing time deposits with financial Institutions	2,138	2,784
Securities available for sale	295,171	264,881
Loans	581,905	593,864
Other Equity Securities	6,069	5,769
Accrued interest receivable	3,909	3,725
Financial liabilities:
Deposits	893,140	792,194
Federal Home Loan Bank advances		9,000
Notes payable	5,250	5,550
Accrued interest payable	204	182
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	0	0
Fair Value
Financial assets:
Cash and cash equivalents	91,662	14,978
Interest-bearing time deposits with financial Institutions	2,138	2,813
Securities available for sale	295,171	264,881
Loans	582,378	594,524
Other Equity Securities	6,069	5,769
Accrued interest receivable	3,909	3,725
Financial liabilities:
Deposits	893,485	792,472
Federal Home Loan Bank advances		9,000
Notes payable	5,250	5,550
Accrued interest payable	204	182
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	1,453	1,449
Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and cash equivalents	91,662	14,978
Interest-bearing time deposits with financial Institutions	0	0
Securities available for sale	6,019	3,958
Loans	0	0
Other Equity Securities	0	0
Accrued interest receivable	0	0
Financial liabilities:
Deposits	0	0
Federal Home Loan Bank advances		0
Notes payable	0	0
Accrued interest payable	0	0
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	0	0
Other Observable Inputs (Level 2)
Financial assets:
Cash and cash equivalents	0	0
Interest-bearing time deposits with financial Institutions	2,138	2,813
Securities available for sale	289,152	260,923
Loans	0	0
Other Equity Securities	0	0
Accrued interest receivable	3,909	3,725
Financial liabilities:
Deposits	893,485	792,472
Federal Home Loan Bank advances		9,000
Notes payable	5,250	5,550
Accrued interest payable	204	182
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	0	0
Significant Unobservable Inputs(Level 3)
Financial assets:
Cash and cash equivalents	0	0
Interest-bearing time deposits with financial Institutions	0	0
Securities available for sale	0
Loans	582,378	594,524
Other Equity Securities	6,069	5,769
Accrued interest receivable	0	0
Financial liabilities:
Deposits	0	0
Federal Home Loan Bank advances		0
Notes payable	0	0
Accrued interest payable	0	0
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	$ 1,453	$ 1,449

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D. SECURITIES AVAILABLE FOR SALE (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
D. Securities Available For Sale Details Narrative
Gross realized gains	$ 152	$ 28	$ 221	$ 39
Sell of securities	1,916	4,044	19,228	5,067
Gross realized losses	0	$ 0	0	$ 0
Amortized cost	106,152		106,152
Fair value of pledged as collateral for public deposits	$ 107,069		$ 107,069

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flow from operating activities:
Net earnings	$ 3,870	$ 3,463
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on sale of securities available-for-sale	$ (221)	(39)
Gain on sale of other real estate owned, net		(220)
Depreciation, amortization and accretion	$ 1,668	1,730
Stock-based compensation expense	122	139
Earnings on bank owned life insurance	(171)	(186)
Decrease in net deferred loan fees	(45)	(18)
Provision for loan losses	150	75
(Increase) decrease in accrued interest receivable	(184)	134
Decrease in prepaid expense	123	197
Decrease in other assets	1,765	661
Decrease in accrued expenses and other liabilities	(2,765)	(33)
Net cash provided by operating activities	4,312	5,903
Cash flows from investing activities:
Purchase of securities available-for-sale	(62,042)	(18,791)
Proceeds from matured/called/sold securities available-for-sale	30,565	18,138
Investment, net of redemption, in other equity securities	(300)	(276)
Redemption of time deposits of other banks	$ 646	1,082
Proceeds from sale of other real estate owned		1,461
Net investment in other real estate owned	$ (43)	(77)
Net decrease (increase) in loans	11,945	(4,746)
Purchases of bank premises, equipment, leasehold improvements	(141)	(526)
Net cash provided by investing activities	(19,370)	(3,735)
Cash flows from financing activities:
Net increase in demand and savings deposits	101,170	34,011
Net decrease in time deposits	(224)	(17,404)
Decrease in FHLB advances	$ (9,000)	(8,000)
Proceeds from note payable		6,000
Principal reduction of note payable	$ (300)	(150)
Dividends paid on common stock	(588)	(403)
Exercise of stock options	$ 684	1,073
Redemption of preferred stock series C		(9,450)
Dividends paid on preferred stock series C		(170)
Net cash provided by financing activities	$ 91,742	5,507
NET INCREASE IN CASH AND CASH EQUIVALENTS	76,684	7,675
Cash and cash equivalents at beginning of period	14,978	14,007
Cash and cash equivalents at end of period	91,662	21,682
Additional cash flow information:
Interest paid	1,087	1,009
Income taxes paid	2,889	1,537
Non-cash investing and financing activities:
Accrued dividends	559	445
Change in unrealized (loss) gain in available-for-sale securities, net of tax	$ (180)	2,499
OREO sale funded by loan origination		$ 3,400

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CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets:
Allowance for loan losses	$ 9,836	$ 9,700
Common Stock, shares authorized	10,000,000	10,000,000
Common Stock, shares issued	4,305,987	4,259,306
Common Stock, shares outstanding	4,305,987	4,259,306

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E. LOANS (Tables)

6 Months Ended

Jun. 30, 2015

LOANS TABLES

Schedule Of Loans Outstanding

								Total
(Dollar amounts in thousands)	FNB							Balance
	Bancorp							June 30,
June 30, 2015	Originated			PNCI		PCI		2015
Commercial real estate	$	298,454		$	30,528	$	1,321	$	330,303
Real estate construction		30,744			1,904		—		32,648
Real estate multi-family		41,620			9,993		—		51,613
Real estate 1 to 4 family		123,811			4,089		—		127,900
Commercial & industrial		29,649			8,096		—		37,745
Consumer loans		1,696			—		—		1,696
Gross loans		525,974			54,610		1,321		581,905
Net deferred loan fees		(404	)		—		—		(404	)
Allowance for loan losses		(9,836	)				—		(9,836	)
Net loans	$	515,734		$	54,610	$	1,321	$	571,665
								Total
(Dollar amounts in thousands)	FNB							Balance
	Bancorp							December 31,
December 31, 2014	Originated			PNCI		PCI		2014
Commercial real estate	$	285,252		$	31,852	$	1,323	$	318,427
Real estate construction		37,827			1,944		—		39,771
Real estate multi-family		43,379			10,445		—		53,824
Real estate 1 to 4 family		123,522			5,210		—		128,732
Commercial & industrial		42,551			9,111		—		51,662
Consumer loans		1,448			—		—		1,448
Gross loans		533,979			58,562		1,323		593,864
Net deferred loan fees		(449	)		—		—		(449	)
Allowance for loan losses		(9,700	)		—		—		(9,700	)
Net loans	$	523,830		$	58,562	$	1,323	$	583,715

Schedule of Allowance for Credit Losses

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2015
(Dollar amounts in thousands)
						Real			Real
						Estate			Estate
	Commercial		Real Estate			Multi			1 to			Commercial
	Real estate		Construction			family			4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,305	$	1,420		$	152		$	1,845		$	961		$	61		$	9,744
Charge-offs		—		—			—			—			—			(5	)		(5	)
Recoveries		16		—			—			—			5			1			22
Provision		706		(723	)		46			169			(118	)		(5	)		75
Ending balance	$	6,027	$	697		$	198		$	2,014		$	848		$	52		$	9,836
Ending balance: individually evaluated for impairment	$	133	$	—		$	—		$	526		$	236		$	8		$	903
Ending balance: collectively evaluated for impairment	$	5,894	$	697		$	198		$	1,488		$	612		$	44		$	8,933
	Allowance for Credit Losses
	For the Six Months Ended June 30, 2015
(Dollar amounts in thousands)
						Real			Real
						Estate			Estate
	Commercial		Real Estate			Multi			1 to			Commercial
	Real Estate		Construction			family			4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,549	$	849		$	206		$	1,965		$	1,073		$	58		$	9,700
Charge-offs		—		—			—			(45	)		—			(11	)		(56	)
Recoveries		22		—			—			1			18			1			42
Provision		456		(152	)		(8	)		93			(243	)		4			150
Ending balance	$	6,027	$	697		$	198		$	2,014		$	848		$	52		$	9,836
Ending balance: individually evaluated for impairment	$	133	$	—		$	—		$	526		$	236		$	8		$	903
Ending balance: collectively evaluated for impairment	$	5,894	$	697		$	198		$	1,488		$	612		$	44		$	8,933

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial			Real Estate			Multi		1 to		Commercial
	Real estate			Construction			family		4 family		& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,624		$	735		$	369	$	1,835	$	1,268		$	66		$	9,897
Charge-offs		—			(183	)		—		—		—			(20	)		(203	)
Recoveries		1,051			—			—		1		110			3			1,165
Provision		(460	)		165			96		414		(212	)		(3	)		—
Ending balance	$	6,215		$	717		$	465	$	2,250	$	1,166		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	128		$	—		$	—	$	481	$	151		$	—		$	760
Ending balance: collectively evaluated for impairment	$	6,087		$	717		$	465	$	1,769	$	1,015		$	46		$	10,099

	Allowance for Credit Losses
	For the Six months Ended June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial			Real Estate			Multi		1 to			Commercial
	Real estate			Construction			family		4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,763		$	734		$	293	$	1,788		$	1,237		$	64		$	9,879
Charge-offs		—			(183	)		—		(62	)		—			(31	)		(276	)
Recoveries		1,052			—			—		2			124			3			1,181
Provision		(600	)		166			172		522			(195	)		10			75
Ending balance	$	6,215		$	717		$	465	$	2,250		$	1,166		$	46		$	10,859
Ending balance:  individually evaluated for impairment	$	128		$	—		$	—	$	481		$	151		$	—		$	760
Ending balance:  collectively evaluated for impairment	$	6,087		$	717		$	465	$	1,769		$	1,015		$	46		$	10,099

Schedule of Recorded Investment in Loans

	Recorded Investment in Loans at June 30, 2015
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Real Estate		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	330,303	$	32,648	$	51,613	$	127,900	$	37,745	$	1,696	$	581,905
Ending balance: individually evaluated for impairment	$	9,544	$	2,364	$	—	$	4,843	$	1,938	$	59	$	18,748
Ending balance: collectively evaluated for impairment	$	320,759	$	30,284	$	51,613	$	123,057	$	35,807	$	1,637	$	563,157

	Recorded Investment in Loans at December 31, 2014
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Commercial		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	318,427	$	39,771	$	53,824	$	128,732	$	51,662	$	1,448	$	593,864
Ending balance: individually evaluated for impairment	$	9,530	$	2,373	$	—	$	4,333	$	2,315	$	64	$	18,615
Ending balance: collectively evaluated for impairment	$	308,897	$	37,398	$	53,824	$	124,399	$	49,347	$	1,384	$	575,249

	Recorded Investment in Loans at June 30, 2014
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Real Estate		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	319,661	$	39,760	$	53,499	$	114,869	$	42,545	$	1,434	$	571,768
Ending balance: individually evaluated for impairment	$	9,043	$	2,382	$	—	$	3,847	$	4,133	$	9	$	19,414
Ending balance: collectively evaluated for impairment	$	310,618	$	37,378	$	53,499	$	111,022	$	38,412	$	1,425	$	552,354

Schedule of Impaired Loans Allowance

	Impaired Loans
	As of and for the six months ended June 30, 2015
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	4,411	$	5,292	$	—	$	4,437	$	125
Commercial real estate construction		2,364		2,547		—		2,368		68
Residential- 1 to 4 family		1,478		1,481		—		1,283		31
Commercial and industrial		546		791		—		743		18
Consumer		—		—		—		—		—
Total		8,799		10,111		—		8,831		242
With an allowance recorded
Commercial real estate	$	5,133	$	5,138	$	133	$	5,172	$	130
Commercial real estate construction		—		—		—		—		—
Residential- 1 to 4 family		3365		3383		526		3,397		69
Commercial and industrial		1,392		1,740		236		1,563		23
Consumer		59		59		8		61		4
Total		9,949		10,320		903		10,193		226
Total
Commercial real estate	$	9,544	$	10,430	$	133	$	9,609	$	255
Commercial real estate construction		2,364		2,547		—		2,368		68
Residential - 1 to 4 family		4,843		4,864		526		4,680		100
Commercial and industrial		1,938		2,531		236		2,306		41
Consumer		59		59		8		61		4
Grand total	$	18,748	$	20,431	$	903	$	19,024	$	468

	Impaired Loans
	As of and for the year ended December 31, 2014
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	4,462	$	5,333	$	—	$	4,473	$	304
Commercial real estate construction		2,373		2,556		—		1,846		150
Residential- 1 to 4 family		1,594		1,737		—		1,379		67
Commercial and industrial		582		939		—		788		54
Consumer		—		—		—		—		—
Total		9,011		10,565		—		8,486		575
With an allowance recorded
Commercial real estate	$	5,068	$	5,071	$	101	$	5,127	$	258
Residential- 1 to 4 family		2,739		2,754		432		2,759		111
Commercial and industrial		1,733		2,100		225		1,907		33
Consumer		64		64		8		67		5
Total		9,604		9,989		766		9,860		407
Total
Commercial real estate	$	9,530	$	10,404	$	101	$	9,600	$	562
Commercial real estate construction		2,373		2,556		—		1,846		150
Residential- 1 to 4 family		4,333		4,491		432		4,138		178
Commercial and industrial		2,315		3,039		225		2,695		87
Consumer		64		64		8		67		5
Grand total	$	18,615	$	20,554	$	766	$	18,346	$	982

Schedule of Loans On Nonaccrual Status

	Loans on Nonaccrual Status as of
(Dollar amounts in thousands)	June 30,		December 31,
	2015		2014
Commercial real estate	$	2,227	$	2,111
Real estate - 1 to 4 family		1,727		1,181
Commercial & industrial		2,007		2,292
Consumer		59		64
Total	$	6,020	$	5,648

Troubled Debt Restructurings

	Total troubled debt restructured loans outstanding at
(dollars in thousands)	June 30, 2015						December 31, 2014
			Non-						Non-
	Accrual		accrual		Total		Accrual		accrual		Total
	status		status		modifications		status		status		modifications
Commercial real estate	$	7,462	$	2,108	$	9,570	$	7,407	$	2,091	$	9,498
Real Estate construction		1,295		—		1,295		1,304		—		1,304
Real estate 1 to 4 family		2,973		477		3,450		3,153		508		3,661
Commercial & industrial		—		1,710		1,710		294		1,760		2,054
Total	$	11,730	$	4,295	$	16,025	$	12,158	$	4,359	$	16,517

Schedule of Short-term Debt Modifications

	Modifications
	For the six months ended June 30, 2015
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1	$	477	$	477
Total		1	$	477	$	477

	Modifications
	For the six months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3	$	1,454	$	1,454
Real estate 1 to 4 family		1		572		572
Total		4	$	2,026	$	2,026

	Modifications
	For the three months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3	$	1,454	$	1,454
Total		3	$	1,454	$	1,454

Schedule Age Analysis Of Past Due Loans

	Age Analysis of Past Due Loans
	As of June 30, 2015
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	—	$	612	$	143	$	755	$	297,699	$	298,454
Real estate construction		—		—		—		—		30,744		30,744
Real estate multi family		—		—		—		—		41,620		41,620
Real estate 1 to 4 family		110		—		509		619		123,192		123,811
Commercial and industrial		—		170		2,006		2,176		27,473		29,649
Consumer		—		—		—		—		1,696		1,696
Total	$	110	$	782	$	2,658	$	3,550	$	522,424	$	525,974
Purchased
Not credit impaired
Commercial real estate	$	108	$	1,898	$	—	$	2,006	$	28,522	$	30,528
Real estate construction		—		—		—		—		1,904		1,904
Real estate multi-family		—		—		—		—		9,993		9,993
Real estate 1 to 4 family		—		—		400		400		3,689		4,089
Commercial and industrial		—		—		—		—		8,096		8,096
Total	$	108	$	1,898	$	400	$	2,406	$	52,204	$	54,610
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,321	$	1,321
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,321	$	1,321

	Age Analysis of Past Due Loans
	As of December 31, 2014
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	8	$	879	$	—	$	887	$	284,365	$	285,252
Real estate construction		—		708		—		708		37,119		37,827
Real estate multi family		3,575		—		—		3,575		39,804		43,379
Real estate 1 to 4 family		330		200		1,112		1,642		121,880		123,522
Commercial & industrial		775		73		1,710		2,558		39,993		42,551
Consumer		—		—		64		64		1,384		1,448
Total	$	4,688	$	1,860	$	2,886	$	9,434	$	524,545	$	533,979
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	—		—	$	31,852	$	31,852
Real estate construction		—		—		—		—		1,944		1,944
Real estate multi-family		—		—		—		—		10,445		10,445
Real estate 1 to 4 family		—		400		—		400		4,810		5,210
Commercial & industrial		—		—		—		—		9,111		9,111
Total	$	—	$	400	$	—	$	400	$	58,162	$	58,562
Purchased
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,323	$	1,323
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,323	$	1,323

Schedule Credit Quality Indicators

	Credit Quality Indicators
	As of June 30, 2015
(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	291,705	$	1,883	$	4,866	$	—	$	298,454
Real estate construction		29,627		—		1,117		—		30,744
Real estate multi-family		41,620		—		—		—		41,620
Real estate 1 to 4 family		122,603		—		1,019		189		123,811
Commercial and industrial		29,035		—		614		—		29,649
Consumer loans		1,590		—		106		—		1,696
Totals	$	516,180	$	1,883	$	7,722	$	189	$	525,974
Purchased
Not credit impaired
Commercial real estate	$	24,709	$	—	$	5,819	$	—	$	30,528
Real estate construction		1,904		—		—		—		1,904
Real estate multi-family		9,993		—		—		—		9,993
Real estate 1 to 4 family		3,689		—		400		—		4,089
Commercial and industrial		8,096		—		—		—		8,096
Total	$	48,391	$	—	$	6,219	$	—	$	54,610
Credit impaired
Commercial real estate									$	1,321
Total									$	1,321

	Credit Quality Indicators
	As of December 31, 2014
(Dollar amounts in thousands)
			Special		Sub-				Total
Originated	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	281,216	$	1,913	$	2,031	$	92	$	285,252
Real estate construction		38,962		—		1,135		—		37,827
Real estate multi-family		43,379		—		—		—		43,379
Real estate 1 to 4 family		122,499		—		1,023		—		123,522
Commercial & industrial		41,394		—		1,157		—		42,551
Consumer loans		1,384		—		64		—		1,448
Totals	$	528,834	$	1,913	$	5,410	$	92	$	533,979
Purchased
Not credit impaired
Commercial real estate	$	26,009	$	—	$	5,843	$	—	$	31,852
Real estate construction		1,944		—		—		—		1,944
Real estate multi-family		10,445		—		—		—		10,445
Real estate 1 to 4 family		4,810		—		—		400		5,210
Commercial & industrial		9,111		—		—		—		9,111
Total	$	52,319	$	—	$	5,843	$	400	$	58,562
Purchased
Credit impaired
Commercial real estate									$	1,323
Total									$	1,323

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
Document and Entity Information:
Entity Registrant Name	FNB BANCORP/CA/
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Entity Central Index Key	0001163199
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		4,307,489
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

XML

G. FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENT TABLES {1}

Schedule of assets measured at fair value on a recurring basis

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2015, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2015		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	6,019	$	6,019	$	—	$	—
Obligations of U.S. Government agencies		78,773		—		78,773		—
Mortgage-backed securities		66,562		—		66,562		—
Obligations of states and political subdivisions		111,256		—		111,256		—
Corporate debt		32,561		—		32,561		—
Total assets measured at fair value	$	295,171	$	6,019	$	289,152	$	—

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2014, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2014		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,958	$	3,958	$	—	$	—
Obligations of U.S. Government agencies		63,062		—		63,062		—
Mortgage-backed securities		78,417		—		78,417		—
Obligations of states and political subdivisions		84,542		—		84,542		—
Corporate debt		34,902		—		34,902		—
Total assets measured at fair value	$	264,881	$	3,958	$	260,923	$	—

Schedule of assets measured at fair value on a non-recurring basis

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2015, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2015		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans:
Commercial real estate	$	124	$	—	$	—	$	124
Residential- 1 to 4 family		213		—		—		213
Commercial and industrial		1,088		—		—		1,088
Total impaired assets measured at fair value	$	1,425	$	—	$	—	$	1,425
			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2014, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2014		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans:
Commercial real estate	$	381	$	—	$	—	$	381
Residential-1 to 4 family		323		—		—		323
Commercial and industrial		1,472		—		—		1,472
Consumer		56		—		—		56
Total impaired assets measured at fair value	$	2,232	$	—	$	—	$	2,232

Schedule of estimated fair value of financial instruments

June 30, 2015	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	91,662	$	91,662	$	91,662
Interest-bearing time deposits with financial institutions		2,138		2,138			$	2,138
Securities available for sale		295,171		295,171		6,019		289,152
Loans		581,905		582,378					$	582,378
Other equity securities		6,069		6,069						6,069
Accrued interest receivable		3,909		3,909				3,909
Financial liabilities:
Deposits		893,140		893,485				893,485
Note payable		5,250		5,250				5,250
Accrued interest payable		204		204				204
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,453						1,453

December 31, 2014	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,978	$	14,978	$	14,978
Interest-bearing time deposits with financial institutions		2,784		2,813			$	2,813
Securities available for sale		264,881		264,881		3,958		260,923
Loans		593,864		594,524					$	594,524
Other equity securities		5,769		5,769						5,769
Accrued interest receivable		3,725		3,725				3,725
Financial liabilities:
Deposits		792,194		792,472				792,472
Federal Home Loan Bank advances		9,000		9,000				9,000
Note payable		5,550		5,550				5,550
Accrued interest payable		182		182				182
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,449						1,449

XML

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Dollar amounts in thousands) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest income:
Interest and fees on loans	$ 7,855	$ 7,897	$ 15,565	$ 15,524
Interest on taxable securities	843	851	1,673	1,694
Interest on tax-exempt securities	589	492	1,103	980
Interest on time dep w /other financial institutions	13	27	27	46
Total interest income	9,300	9,267	18,368	18,244
Interest expense:
Interest on deposits	$ 538	484	992	945
Interest on FHLB advances		3	1	11
Interest on note payable	$ 57	68	116	68
Total interest expense	595	555	1,109	1,024
Net interest income	8,705	$ 8,712	17,259	17,220
Provision for loan losses	75		150	75
Net interest income after provision for loan losses	8,630	$ 8,712	17,109	17,145
Noninterest income:
Service charges	627	647	1,238	1,284
Net gain on sale of available-for-sale securities	152	28	221	39
Bank owned life insurance earnings	87	90	171	186
Other income	401	215	715	517
Total noninterest income	1,267	980	2,345	2,026
Noninterest expense:
Salaries and employee benefits	4,111	4,177	8,413	8,395
Occupancy expense	646	694	1,314	1,374
Equipment expense	410	406	815	797
Professional fees	354	501	741	1,032
FDIC assessment	150	180	300	360
Telephone, postage and supplies	256	313	545	599
Advertising	170	136	269	221
Data processing expense	147	134	281	279
Low income housing expense	71	110	142	220
Surety insurance	88	67	176	134
Directors expense	$ 72	63	$ 144	126
Loss (gain) on sale of other real estate owned, net		60		(220)
Other real estate owned (recovery) expense, net	$ (6)	11	$ (6)	88
Other expense	320	358	598	647
Total noninterest expense	6,789	7,210	13,732	14,052
Earnings before provision for income tax expense	3,108	2,482	5,722	5,119
Provision for income tax expense	1,037	853	1,852	1,656
Net earnings	$ 2,071	$ 1,629	$ 3,870	3,463
Dividends and discount accretion on preferred stock				170
Net earnings available to common stockholders	$ 2,071	$ 1,629	$ 3,870	$ 3,293
Earnings per share data:
Basic	$ 0.48	$ 0.39	$ 0.90	$ 0.78
Diluted	$ 0.47	$ 0.37	$ 0.88	$ 0.76
Weighted average shares outstanding:
Basic	4,296	4,230	4,285	4,207
Diluted	4,415	4,367	4,409	4,349

XML

E. LOANS

6 Months Ended

Jun. 30, 2015

LOANS

LOANS

Loans are summarized as follows at June 30, 2015 and December 31, 2014:

								Total
(Dollar amounts in thousands)	FNB							Balance
	Bancorp							June 30,
June 30, 2015	Originated			PNCI		PCI		2015
Commercial real estate	$	298,454		$	30,528	$	1,321	$	330,303
Real estate construction		30,744			1,904		—		32,648
Real estate multi-family		41,620			9,993		—		51,613
Real estate 1 to 4 family		123,811			4,089		—		127,900
Commercial & industrial		29,649			8,096		—		37,745
Consumer loans		1,696			—		—		1,696
Gross loans		525,974			54,610		1,321		581,905
Net deferred loan fees		(404	)		—		—		(404	)
Allowance for loan losses		(9,836	)				—		(9,836	)
Net loans	$	515,734		$	54,610	$	1,321	$	571,665
								Total
(Dollar amounts in thousands)	FNB							Balance
	Bancorp							December 31,
December 31, 2014	Originated			PNCI		PCI		2014
Commercial real estate	$	285,252		$	31,852	$	1,323	$	318,427
Real estate construction		37,827			1,944		—		39,771
Real estate multi-family		43,379			10,445		—		53,824
Real estate 1 to 4 family		123,522			5,210		—		128,732
Commercial & industrial		42,551			9,111		—		51,662
Consumer loans		1,448			—		—		1,448
Gross loans		533,979			58,562		1,323		593,864
Net deferred loan fees		(449	)		—		—		(449	)
Allowance for loan losses		(9,700	)		—		—		(9,700	)
Net loans	$	523,830		$	58,562	$	1,323	$	583,715

Note: PNCI means Purchased, Not Credit Impaired. PCI means Purchased, Credit Impaired.

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2015
(Dollar amounts in thousands)
						Real			Real
						Estate			Estate
	Commercial		Real Estate			Multi			1 to			Commercial
	Real estate		Construction			family			4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,305	$	1,420		$	152		$	1,845		$	961		$	61		$	9,744
Charge-offs		—		—			—			—			—			(5	)		(5	)
Recoveries		16		—			—			—			5			1			22
Provision		706		(723	)		46			169			(118	)		(5	)		75
Ending balance	$	6,027	$	697		$	198		$	2,014		$	848		$	52		$	9,836
Ending balance: individually evaluated for impairment	$	133	$	—		$	—		$	526		$	236		$	8		$	903
Ending balance: collectively evaluated for impairment	$	5,894	$	697		$	198		$	1,488		$	612		$	44		$	8,933
	Allowance for Credit Losses
	For the Six Months Ended June 30, 2015
(Dollar amounts in thousands)
						Real			Real
						Estate			Estate
	Commercial		Real Estate			Multi			1 to			Commercial
	Real Estate		Construction			family			4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,549	$	849		$	206		$	1,965		$	1,073		$	58		$	9,700
Charge-offs		—		—			—			(45	)		—			(11	)		(56	)
Recoveries		22		—			—			1			18			1			42
Provision		456		(152	)		(8	)		93			(243	)		4			150
Ending balance	$	6,027	$	697		$	198		$	2,014		$	848		$	52		$	9,836
Ending balance: individually evaluated for impairment	$	133	$	—		$	—		$	526		$	236		$	8		$	903
Ending balance: collectively evaluated for impairment	$	5,894	$	697		$	198		$	1,488		$	612		$	44		$	8,933

	Recorded Investment in Loans at June 30, 2015
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Real Estate		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	330,303	$	32,648	$	51,613	$	127,900	$	37,745	$	1,696	$	581,905
Ending balance: individually evaluated for impairment	$	9,544	$	2,364	$	—	$	4,843	$	1,938	$	59	$	18,748
Ending balance: collectively evaluated for impairment	$	320,759	$	30,284	$	51,613	$	123,057	$	35,807	$	1,637	$	563,157

	Recorded Investment in Loans at December 31, 2014
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Commercial		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	318,427	$	39,771	$	53,824	$	128,732	$	51,662	$	1,448	$	593,864
Ending balance: individually evaluated for impairment	$	9,530	$	2,373	$	—	$	4,333	$	2,315	$	64	$	18,615
Ending balance: collectively evaluated for impairment	$	308,897	$	37,398	$	53,824	$	124,399	$	49,347	$	1,384	$	575,249

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial			Real Estate			Multi		1 to		Commercial
	Real estate			Construction			family		4 family		& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,624		$	735		$	369	$	1,835	$	1,268		$	66		$	9,897
Charge-offs		—			(183	)		—		—		—			(20	)		(203	)
Recoveries		1,051			—			—		1		110			3			1,165
Provision		(460	)		165			96		414		(212	)		(3	)		—
Ending balance	$	6,215		$	717		$	465	$	2,250	$	1,166		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	128		$	—		$	—	$	481	$	151		$	—		$	760
Ending balance: collectively evaluated for impairment	$	6,087		$	717		$	465	$	1,769	$	1,015		$	46		$	10,099

	Allowance for Credit Losses
	For the Six months Ended June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial			Real Estate			Multi		1 to			Commercial
	Real estate			Construction			family		4 family			& industrial			Consumer			Total
Allowance for credit losses
Beginning balance	$	5,763		$	734		$	293	$	1,788		$	1,237		$	64		$	9,879
Charge-offs		—			(183	)		—		(62	)		—			(31	)		(276	)
Recoveries		1,052			—			—		2			124			3			1,181
Provision		(600	)		166			172		522			(195	)		10			75
Ending balance	$	6,215		$	717		$	465	$	2,250		$	1,166		$	46		$	10,859
Ending balance:  individually evaluated for impairment	$	128		$	—		$	—	$	481		$	151		$	—		$	760
Ending balance:  collectively evaluated for impairment	$	6,087		$	717		$	465	$	1,769		$	1,015		$	46		$	10,099

	Recorded Investment in Loans at June 30, 2014
(Dollar amounts in thousands)
					Real		Real
					Estate		Estate
	Commercial		Real Estate		Multi		1 to		Commercial
	Real Estate		Construction		family		4 family		& industrial		Consumer		Total
Loans:
Ending balance	$	319,661	$	39,760	$	53,499	$	114,869	$	42,545	$	1,434	$	571,768
Ending balance: individually evaluated for impairment	$	9,043	$	2,382	$	—	$	3,847	$	4,133	$	9	$	19,414
Ending balance: collectively evaluated for impairment	$	310,618	$	37,378	$	53,499	$	111,022	$	38,412	$	1,425	$	552,354

	Impaired Loans
	As of and for the six months ended June 30, 2015
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	4,411	$	5,292	$	—	$	4,437	$	125
Commercial real estate construction		2,364		2,547		—		2,368		68
Residential- 1 to 4 family		1,478		1,481		—		1,283		31
Commercial and industrial		546		791		—		743		18
Consumer		—		—		—		—		—
Total		8,799		10,111		—		8,831		242
With an allowance recorded
Commercial real estate	$	5,133	$	5,138	$	133	$	5,172	$	130
Commercial real estate construction		—		—		—		—		—
Residential- 1 to 4 family		3365		3383		526		3,397		69
Commercial and industrial		1,392		1,740		236		1,563		23
Consumer		59		59		8		61		4
Total		9,949		10,320		903		10,193		226
Total
Commercial real estate	$	9,544	$	10,430	$	133	$	9,609	$	255
Commercial real estate construction		2,364		2,547		—		2,368		68
Residential - 1 to 4 family		4,843		4,864		526		4,680		100
Commercial and industrial		1,938		2,531		236		2,306		41
Consumer		59		59		8		61		4
Grand total	$	18,748	$	20,431	$	903	$	19,024	$	468

	Impaired Loans
	As of and for the year ended December 31, 2014
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	4,462	$	5,333	$	—	$	4,473	$	304
Commercial real estate construction		2,373		2,556		—		1,846		150
Residential- 1 to 4 family		1,594		1,737		—		1,379		67
Commercial and industrial		582		939		—		788		54
Consumer		—		—		—		—		—
Total		9,011		10,565		—		8,486		575
With an allowance recorded
Commercial real estate	$	5,068	$	5,071	$	101	$	5,127	$	258
Residential- 1 to 4 family		2,739		2,754		432		2,759		111
Commercial and industrial		1,733		2,100		225		1,907		33
Consumer		64		64		8		67		5
Total		9,604		9,989		766		9,860		407
Total
Commercial real estate	$	9,530	$	10,404	$	101	$	9,600	$	562
Commercial real estate construction		2,373		2,556		—		1,846		150
Residential- 1 to 4 family		4,333		4,491		432		4,138		178
Commercial and industrial		2,315		3,039		225		2,695		87
Consumer		64		64		8		67		5
Grand total	$	18,615	$	20,554	$	766	$	18,346	$	982

Nonaccrual loans totaled $6,020,000 and $5,648,000 as of June 30, 2015 and December 31, 2014. The difference between impaired loan and nonaccrual loan classifications are loans that have been restructured and performing under modified loan agreements, and where principal and interest is considered to be collectible are considered impaired loans.

	Loans on Nonaccrual Status as of
(Dollar amounts in thousands)	June 30,		December 31,
	2015		2014
Commercial real estate	$	2,227	$	2,111
Real estate - 1 to 4 family		1,727		1,181
Commercial & industrial		2,007		2,292
Consumer		59		64
Total	$	6,020	$	5,648

Interest income on impaired loans of $468,000 was recognized for cash payments received during the six months ended June 30, 2015, and $982,000 was recognized for cash payments received during the year ended December 31, 2014, respectively. Interest income on impaired loans for cash payments received during the six month period ended June 30, 2014 was $455,000; for the three months ended June 30, 2015 it was $243,000, and for the three months ended June 30, 2014 it was $184,000. The amount of interest on impaired loans not collected for the six months ended June 30, 2015 was $198,000 and for the year ended December 31, 2014 was $398,000. For the six months ended June 30, 2014, it was $214,000; for the three months ended June 30, 2015, it was $92,000; for the three months ended June 30, 2014 it was $64,000. The cumulative amount of unpaid interest on impaired loans was $3,142,000 at June 30, 2015, and $3,829,000 at the year ended December 31, 2014. Average recorded investment in impaired loans for six months ended June 30, 2014 was $19,211,000. Average recorded investment in impaired loans for three months ended June 30, 2015 was $18,963,000, and for the three months ended June 30, 2014 was $21,963,000, and interest paid on impaired loans for 3 months for three months ended June 30, 2015 was $243,000. Interest paid for three months ended June 30, 2014 was $184,000. Total outstanding principal of troubled debt restructured loans as of June 30, 2015 was $16,025,000, of which $9,570,000 was commercial real estate loans, $1,295,000 was real estate construction loans, $3,450,000 was real estate one to four family, and $1,710,000 was commercial loans. Total outstanding principal of troubled debt restructured loans at December 31, 2014 was $16,517,000, of which $2,054,000 was commercial loans, $1,304,000 was real estate construction loans, $3,661,000 was real estate one to four family, and $9,498,000 was commercial real estate loans.

Troubled Debt Restructurings 

	Total troubled debt restructured loans outstanding at
(dollars in thousands)	June 30, 2015						December 31, 2014
			Non-						Non-
	Accrual		accrual		Total		Accrual		accrual		Total
	status		status		modifications		status		status		modifications
Commercial real estate	$	7,462	$	2,108	$	9,570	$	7,407	$	2,091	$	9,498
Real Estate construction		1,295		—		1,295		1,304		—		1,304
Real estate 1 to 4 family		2,973		477		3,450		3,153		508		3,661
Commercial & industrial		—		1,710		1,710		294		1,760		2,054
Total	$	11,730	$	4,295	$	16,025	$	12,158	$	4,359	$	16,517

Modification Categories

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.

Rate Modification – A modification in which the interest rate is changed.

Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

As of June 30, 2015, there were no commitments for additional funding of troubled debt restructurings.

There were no new modifications for the three months ended June 30, 2015.

During the periods ended June 30, 2015, no loans defaulted that were modified as troubled debt restructurings within the previous twelve months.

The following table details modifications for the six months ended June 30, 2015:

	Modifications
	For the six months ended June 30, 2015
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1	$	477	$	477
Total		1	$	477	$	477

All restructurings were a modification of interest rate and as a result payment.

The following table details modifications for the six months ended June 30, 2014:

	Modifications
	For the six months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3	$	1,454	$	1,454
Real estate 1 to 4 family		1		572		572
Total		4	$	2,026	$	2,026

	Modifications
	For the three months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3	$	1,454	$	1,454
Total		3	$	1,454	$	1,454

During the period ended June 30, 2014, no loans defaulted that were modified as troubled debt restructurings within the previous twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

Risk rating system

Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.

Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. These well-defined weaknesses may include a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.

Doubtful loans represent credits with weakness inherent in the Substandard classification and where collection or liquidation in full is highly questionable. To be classified Doubtful, there must be specific pending factors which prevent the Loan Review Officer from determining the amount of loss contained in the credit. When the amount of loss can be reasonably estimated, that amount is classified as “loss” and the remainder is classified as Substandard.

Real Estate – Multi-Family

Our multi-family commercial real estate loans are secured by multi-family properties located primarily in San Mateo and San Francisco counties. These loans are made to investors where our primary source of repayment is from cash flows generated by the properties, through rent collections. The borrowers’ promissory notes are secured with recorded liens on the underlying properties. The borrowers would normally also be required to personally guarantee repayment of the loans. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Commercial Real Estate Loans

Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan.

The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Real Estate Construction Loans

Our real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.

Real Estate-1 to 4 family Loans

Our residential real estate loans are generally made to borrowers who are buying or refinancing their primary personal residence or a rental property of 1-4 single family residential units. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income and/or property values decline significantly.

Commercial and Industrial Loans

Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.

Consumer Loans

Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income, or file for relief from creditors through bankruptcy proceedings.

	Age Analysis of Past Due Loans
	As of June 30, 2015
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	—	$	612	$	143	$	755	$	297,699	$	298,454
Real estate construction		—		—		—		—		30,744		30,744
Real estate multi family		—		—		—		—		41,620		41,620
Real estate 1 to 4 family		110		—		509		619		123,192		123,811
Commercial and industrial		—		170		2,006		2,176		27,473		29,649
Consumer		—		—		—		—		1,696		1,696
Total	$	110	$	782	$	2,658	$	3,550	$	522,424	$	525,974
Purchased
Not credit impaired
Commercial real estate	$	108	$	1,898	$	—	$	2,006	$	28,522	$	30,528
Real estate construction		—		—		—		—		1,904		1,904
Real estate multi-family		—		—		—		—		9,993		9,993
Real estate 1 to 4 family		—		—		400		400		3,689		4,089
Commercial and industrial		—		—		—		—		8,096		8,096
Total	$	108	$	1,898	$	400	$	2,406	$	52,204	$	54,610
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,321	$	1,321
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,321	$	1,321

At June 30, 2015, there were no loans that were 90 days or more past due where interest was still accruing.

The over 90 days column includes nonaccruals that were over 90 days, but does not include loans that are in nonaccrual status for reasons other than past due.

	Age Analysis of Past Due Loans
	As of December 31, 2014
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	8	$	879	$	—	$	887	$	284,365	$	285,252
Real estate construction		—		708		—		708		37,119		37,827
Real estate multi family		3,575		—		—		3,575		39,804		43,379
Real estate 1 to 4 family		330		200		1,112		1,642		121,880		123,522
Commercial & industrial		775		73		1,710		2,558		39,993		42,551
Consumer		—		—		64		64		1,384		1,448
Total	$	4,688	$	1,860	$	2,886	$	9,434	$	524,545	$	533,979
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	—		—	$	31,852	$	31,852
Real estate construction		—		—		—		—		1,944		1,944
Real estate multi-family		—		—		—		—		10,445		10,445
Real estate 1 to 4 family		—		400		—		400		4,810		5,210
Commercial & industrial		—		—		—		—		9,111		9,111
Total	$	—	$	400	$	—	$	400	$	58,162	$	58,562
Purchased
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,323	$	1,323
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,323	$	1,323

At December 31, 2014 there were no loans that were 90 days or more past due where interest was still accruing.

	Credit Quality Indicators
	As of June 30, 2015
(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	291,705	$	1,883	$	4,866	$	—	$	298,454
Real estate construction		29,627		—		1,117		—		30,744
Real estate multi-family		41,620		—		—		—		41,620
Real estate 1 to 4 family		122,603		—		1,019		189		123,811
Commercial and industrial		29,035		—		614		—		29,649
Consumer loans		1,590		—		106		—		1,696
Totals	$	516,180	$	1,883	$	7,722	$	189	$	525,974
Purchased
Not credit impaired
Commercial real estate	$	24,709	$	—	$	5,819	$	—	$	30,528
Real estate construction		1,904		—		—		—		1,904
Real estate multi-family		9,993		—		—		—		9,993
Real estate 1 to 4 family		3,689		—		400		—		4,089
Commercial and industrial		8,096		—		—		—		8,096
Total	$	48,391	$	—	$	6,219	$	—	$	54,610
Credit impaired
Commercial real estate									$	1,321
Total									$	1,321

	Credit Quality Indicators
	As of December 31, 2014
(Dollar amounts in thousands)
			Special		Sub-				Total
Originated	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	281,216	$	1,913	$	2,031	$	92	$	285,252
Real estate construction		38,962		—		1,135		—		37,827
Real estate multi-family		43,379		—		—		—		43,379
Real estate 1 to 4 family		122,499		—		1,023		—		123,522
Commercial & industrial		41,394		—		1,157		—		42,551
Consumer loans		1,384		—		64		—		1,448
Totals	$	528,834	$	1,913	$	5,410	$	92	$	533,979
Purchased
Not credit impaired
Commercial real estate	$	26,009	$	—	$	5,843	$	—	$	31,852
Real estate construction		1,944		—		—		—		1,944
Real estate multi-family		10,445		—		—		—		10,445
Real estate 1 to 4 family		4,810		—		—		400		5,210
Commercial & industrial		9,111		—		—		—		9,111
Total	$	52,319	$	—	$	5,843	$	400	$	58,562
Purchased
Credit impaired
Commercial real estate									$	1,323
Total									$	1,323

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D. SECURITIES AVAILABLE FOR SALE

6 Months Ended

Jun. 30, 2015

SECURITIES AVAILABLE FOR SALE

SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available-for-sale are as follows:

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
June 30, 2015:
U.S. Treasury securities	$	5,996	$	27	$	(4	)	$	6,019
Obligations of U.S. government agencies		78,545		354		(126	)		78,773
Mortgage-backed securities		66,150		909		(497	)		66,562
Obligations of states and political subdivisions		109,615		2,208		(567	)		111,256
Corporate debt		32,512		165		(116	)		32,561
	$	292,818	$	3,663	$	(1,310	)	$	295,171
December 31, 2014:
U.S. Treasury securities	$	3,975	$	12	$	(29	)	$	3,958
Obligations of U.S. government agencies		63,090		270		(298	)		63,062
Mortgage-backed securities		78,076		1,002		(661	)		78,417
Obligations of states and political subdivisions		82,151		2,534		(143	)		84,542
Corporate debt		34,931		176		(205	)		34,902
	$	262,223	$	3,994	$	(1,336	)	$	264,881

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of June 30, 2015 and December 31, 2014, respectively, is as follows:

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2015
U. S. Treasury securities	$	—	$	—		$	2,034	$	(4	)	$	2,034	$	(4	)
Obligations of U.S. government agencies		22,189		(71	)		6,992		(55	)		29,181	$	(126	)
Mortgage-backed securities		15,298		(177	)		14,989		(320	)		30,287		(497	)
Obligations of states and political subdivisions		36,204		(517	)		1,831		(50	)		38,035		(567	)
Corporate debt		9,390		(97	)		2,483		(19	)		11,873		(116	)
Total	$	83,081	$	(862	)	$	28,329	$	(448	)	$	111,410	$	(1,310	)

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2014:
U. S. Treasury securities	$	—	$	—		$	2,015	$	(29	)	$	2,015	$	(29	)
Obligations of U.S. government agencies		13,178		(43	)		19,116		(255	)		32,294		(298	)
Mortgage-backed securities		5,056		(10	)		36,382		(651	)		41,438		(661	)
Obligations of states and political subdivisions		8,678		(49	)		5,696		(94	)		14,374		(143	)
Corporate debt		18,065		(125	)		4,919		(80	)		22,984		(205	)
Total	$	44,977	$	(227	)	$	68,128	$	(1,109	)	$	113,105	$	(1,336	)

At June 30, 2015, there were twenty-three securities in an unrealized loss position for twelve consecutive months or more. At the same date, there were eighty-five securities in an unrealized loss position for less than 12 consecutive months. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to changes in interest rates and the Company does not intend to sell nor expects it will be required to sell investment securities identified with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at June 30, 2015 and December 31, 2014.

The amortized cost and carrying value of available-for-sale debt securities as of June 30, 2015 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2015: 

(Dollar amounts in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale:
Due in one year or less	$	13,123	$	13,230
Due after one through five years		126,436		127,345
Due after five years through ten years		124,134		125,118
Due after ten years		29,125		29,478
	$	292,818	$	295,171

For the six months ended June 30, 2015 and June 30, 2014, respectively, gross realized gains amounted to $221,000 and $39,000, on securities sold for $19,228,000 and $5,067,000, respectively. For the six months ended June 30, 2015 and June 30, 2014, there were no gross realized losses. For the three months ended June 30, 2015 and June 30, 2014, respectively, gross realized gains amounted to $152,000 and $28,000 on securities sold for $1,916,000 and $4,044,000 respectively. For the three months ended June 30, 2015 and June 30, 2014, there were no gross realized losses.

At June 30, 2015, securities with an amortized cost of $106,152,000 and fair value of $107,069,000 were pledged as collateral for public deposits and for other purposes required by law.

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D. SECURITIES AVAILABLE FOR SALE, Amortized Cost and Carrying Value (Details) $ in Thousands	Jun. 30, 2015 USD ($)
SECURITIES AVAILABLE FOR SALE - Summary of Investments Amortized Cost and Carrying Value
Due in one year or less, Amortized Cost	$ 13,123
Due after one through five years, Amortized Cost	126,436
Due after five through ten years, Amortized Cost	124,134
Due after ten years, Amortized Cost	29,125
Equity securities, Amortized Cost	292,818
Due in one year or less, Estimated Fair Value	13,230
Due after one through five years, Estimated Fair Value	127,345
Due after five through ten years, Estimated Fair Value	125,118
Due after ten years, Estimated Fair Value	29,478
Equity securities, Estimated Fair Value	$ 295,171

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B. STOCK OPTION PLANS (Detail Narratives) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Share-based Compensation [Abstract]
Compensation expense for options			$ 61	$ 69
Compensation Expense			122	139
Recognized income tax benefit	$ 0	$ 245	0	245
Intrinsic Value Options Exercised			625	259
Intrinsic Value Options Exercisable	3,034	$ 2,897	3,034	$ 2,897
Unrecognized Compensation Expense Nonvested Options	$ 611		$ 611
Non-vested options weighted average period			3 years 2 months 12 days

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C. EARNINGS PER SHARE CALCULATION (Tables)

6 Months Ended

Jun. 30, 2015

Earnings per share data:

Earnings per common share (EPS) computed

(All amounts in thousands)	Three months ended				Six months ended
	June 30,				June 30,
	2015		2014		2015		2014
Net earnings	$	2,071	$	1,629	$	3,870	$	3,463
Dividends and discount accretion on preferred stock		—		—		—		(170	)
Net earnings available to common stockholders	$	2,071	$	1,629	$	3,870	$	3,633
Average number of shares outstanding		4,296		4,230		4,285		4,207
Effect of dilutive options		119		130		124		135
Average number of shares outstanding used to calculate diluted earnings per share		4,415		4,367		4,409		4,349
Anti-dilutive options not included		93,751		65,940		94,882		258,741

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F. BORROWINGS

6 Months Ended

Jun. 30, 2015

BORROWINGS

BORROWINGS

Federal home Loan Bank advances

There were no overnight advances at June 30, 2015.

Corporate loan

On March 27, 2014, FNB Bancorp received funding under a $6,000,000 term loan credit facility. This loan carries a variable rate of interest that fluctuates on a monthly basis. The interest rate is based on the 3 month LIBOR rate plus 4%. Payments of $50,000 in principal plus accrued interest are payable monthly. The first loan payment was due and was paid on May 1, 2014. The maturity date on this credit facility is March 26, 2019. On the maturity date, all outstanding principal plus accrued interest shall become due and payable. FNB Bancorp has pledged its stock ownership in First National Bank of Northern California as collateral subject to the terms and conditions contained in the Loan Agreement and the Pledge and Security Agreement. FNB Bancorp retains the right to prepay this debt at any time upon not less than 7 days’ prior written notice to Lender. The proceeds from this loan were contributed to the Bank as an additional capital contribution. This capital contribution qualified as Tier 1 capital for the Bank under regulatory capital guidelines.

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G. FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENT TABLES

FAIR VALUE MEASUREMENT

The following table presents information about the Company’s assets and liabilities measured at fair value as of June 30, 2015 and December 31, 2014, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. During the first six months of 2015 and 2014, there were no transfers between levels of fair value hierarchy.

The following tables present the recorded amounts of assets measured at fair value on a recurring basis: 

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2015, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2015		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	6,019	$	6,019	$	—	$	—
Obligations of U.S. Government agencies		78,773		—		78,773		—
Mortgage-backed securities		66,562		—		66,562		—
Obligations of states and political subdivisions		111,256		—		111,256		—
Corporate debt		32,561		—		32,561		—
Total assets measured at fair value	$	295,171	$	6,019	$	289,152	$	—

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2014, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2014		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,958	$	3,958	$	—	$	—
Obligations of U.S. Government agencies		63,062		—		63,062		—
Mortgage-backed securities		78,417		—		78,417		—
Obligations of states and political subdivisions		84,542		—		84,542		—
Corporate debt		34,902		—		34,902		—
Total assets measured at fair value	$	264,881	$	3,958	$	260,923	$	—

The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis: 

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2015, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2015		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans:
Commercial real estate	$	124	$	—	$	—	$	124
Residential- 1 to 4 family		213		—		—		213
Commercial and industrial		1,088		—		—		1,088
Total impaired assets measured at fair value	$	1,425	$	—	$	—	$	1,425
			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2014, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2014		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans:
Commercial real estate	$	381	$	—	$	—	$	381
Residential-1 to 4 family		323		—		—		323
Commercial and industrial		1,472		—		—		1,472
Consumer		56		—		—		56
Total impaired assets measured at fair value	$	2,232	$	—	$	—	$	2,232

The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.

Other real estate owned is carried at the lower of historical cost or fair value less costs to sell. An appraisal is obtained at the time the Bank acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment is recorded along with a corresponding reduction in the book carrying value of the property.

The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Generally, the third party appraisals apply the “market approach,” which is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3.

Fair Values of Financial Instruments.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments.

Cash and Cash Equivalents including Interest Bearing Time Deposits with Financial Institutions.

The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.

Securities Available-for-Sale.

Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans Receivable.

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.

Other equity securities.

These are mostly Federal Reserve Bank stock and Federal Home Loan Bank stock, carried in Other Assets. They are not traded, and not available for sale, and have no fair market value.

Deposit liabilities.

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.

Federal Home Loan Bank Advances.

The fair values of Federal Home Loan Bank Advances are based on discounted cash flows. The discount rate is equal to the market rate currently offered on similar products.

Note payable.

The fair value of the note payable is based on the current balance outstanding The fair value is calculated on discounted cash flows. The discount rate is equal to the market rate offered on similar products. 

Accrued Interest Receivable and Payable

The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.

The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.

The Bank has excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-A), such as Bank premises and equipment, deferred taxes and other liabilities. In addition, the Bank has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

The following table provides summary information on the estimated fair value of financial instruments at June 30, 2015:  

June 30, 2015	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	91,662	$	91,662	$	91,662
Interest-bearing time deposits with financial institutions		2,138		2,138			$	2,138
Securities available for sale		295,171		295,171		6,019		289,152
Loans		581,905		582,378					$	582,378
Other equity securities		6,069		6,069						6,069
Accrued interest receivable		3,909		3,909				3,909
Financial liabilities:
Deposits		893,140		893,485				893,485
Note payable		5,250		5,250				5,250
Accrued interest payable		204		204				204
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,453						1,453

The carrying amount of loans includes $6,020,000 of nonaccrual loans (loans that are not accruing interest) as of June 30, 2015. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.

The following table provides summary information on the estimated fair value of financial instruments at December 31, 2014:

December 31, 2014	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,978	$	14,978	$	14,978
Interest-bearing time deposits with financial institutions		2,784		2,813			$	2,813
Securities available for sale		264,881		264,881		3,958		260,923
Loans		593,864		594,524					$	594,524
Other equity securities		5,769		5,769						5,769
Accrued interest receivable		3,725		3,725				3,725
Financial liabilities:
Deposits		792,194		792,472				792,472
Federal Home Loan Bank advances		9,000		9,000				9,000
Note payable		5,550		5,550				5,550
Accrued interest payable		182		182				182
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,449						1,449

The carrying amount of loans includes $5,648,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2014. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. 

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D. SECURITIES AVAILABLE FOR SALE (Tables)

6 Months Ended

Jun. 30, 2015

SECURITIES AVAILABLE FOR SALE TABLES

Schedule of amortized cost and carrying values of securities available-for-sale

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
June 30, 2015:
U.S. Treasury securities	$	5,996	$	27	$	(4	)	$	6,019
Obligations of U.S. government agencies		78,545		354		(126	)		78,773
Mortgage-backed securities		66,150		909		(497	)		66,562
Obligations of states and political subdivisions		109,615		2,208		(567	)		111,256
Corporate debt		32,512		165		(116	)		32,561
	$	292,818	$	3,663	$	(1,310	)	$	295,171
December 31, 2014:
U.S. Treasury securities	$	3,975	$	12	$	(29	)	$	3,958
Obligations of U.S. government agencies		63,090		270		(298	)		63,062
Mortgage-backed securities		78,076		1,002		(661	)		78,417
Obligations of states and political subdivisions		82,151		2,534		(143	)		84,542
Corporate debt		34,931		176		(205	)		34,902
	$	262,223	$	3,994	$	(1,336	)	$	264,881

Schedule analysis of gross unrealized losses of the available-for-sale investment securities

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2015
U. S. Treasury securities	$	—	$	—		$	2,034	$	(4	)	$	2,034	$	(4	)
Obligations of U.S. government agencies		22,189		(71	)		6,992		(55	)		29,181	$	(126	)
Mortgage-backed securities		15,298		(177	)		14,989		(320	)		30,287		(497	)
Obligations of states and political subdivisions		36,204		(517	)		1,831		(50	)		38,035		(567	)
Corporate debt		9,390		(97	)		2,483		(19	)		11,873		(116	)
Total	$	83,081	$	(862	)	$	28,329	$	(448	)	$	111,410	$	(1,310	)

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2014:
U. S. Treasury securities	$	—	$	—		$	2,015	$	(29	)	$	2,015	$	(29	)
Obligations of U.S. government agencies		13,178		(43	)		19,116		(255	)		32,294		(298	)
Mortgage-backed securities		5,056		(10	)		36,382		(651	)		41,438		(661	)
Obligations of states and political subdivisions		8,678		(49	)		5,696		(94	)		14,374		(143	)
Corporate debt		18,065		(125	)		4,919		(80	)		22,984		(205	)
Total	$	44,977	$	(227	)	$	68,128	$	(1,109	)	$	113,105	$	(1,336	)

Schedule of amortized cost and carrying value of available-for-sale debt securities by contractual maturity

(Dollar amounts in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale:
Due in one year or less	$	13,123	$	13,230
Due after one through five years		126,436		127,345
Due after five years through ten years		124,134		125,118
Due after ten years		29,125		29,478
	$	292,818	$	295,171

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G. FAIR VALUE MEASUREMENT, Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
U. S. Treasury securities	$ 6,019	$ 3,958
Obligations of U.S. Government agencies	78,773	63,062
Mortgage-backed securities	66,562	78,417
Obligations of states and political subdivisions	111,256	84,542
Corporate debt	32,561	34,902
Total assets measured at fair value	295,171	264,881
Quoted Prices in Active Markets for Identical Assets (Level 1)
U. S. Treasury securities	6,019	3,958
Obligations of U.S. Government agencies	0	0
Mortgage-backed securities	0	0
Obligations of states and political subdivisions	0	0
Corporate debt	0	0
Total assets measured at fair value	6,019	3,958
Other Observable Inputs (Level 2)
U. S. Treasury securities	0	0
Obligations of U.S. Government agencies	78,773	63,062
Mortgage-backed securities	66,562	78,417
Obligations of states and political subdivisions	111,256	84,542
Corporate debt	32,561	34,902
Total assets measured at fair value	289,152	260,923
Significant Unobservable Inputs(Level 3)
U. S. Treasury securities	0	0
Obligations of U.S. Government agencies	0	0
Mortgage-backed securities	0	0
Obligations of states and political subdivisions	0	0
Corporate debt	0	0
Total assets measured at fair value	$ 0	$ 0

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D. SECURITIES AVAILABLE FOR SALE, Amortized cost and fair values (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Available for sale securities, Amortized Cost	$ 292,818	$ 262,223
Available for sale securities, Unrealized Gains	3,663	3,994
Available for sale securities, Unrealized Losses	(1,310)	(1,336)
Available for sale securities, Estimated Fair Value	295,171	264,881
U.S. Treasury securities
Available for sale securities, Amortized Cost	5,996	3,975
Available for sale securities, Unrealized Gains	27	12
Available for sale securities, Unrealized Losses	(4)	(29)
Available for sale securities, Estimated Fair Value	6,019	3,958
Obligations of U.S. government agencies
Available for sale securities, Amortized Cost	78,545	63,090
Available for sale securities, Unrealized Gains	354	270
Available for sale securities, Unrealized Losses	(126)	(298)
Available for sale securities, Estimated Fair Value	78,773	63,062
Mortgage-backed securities
Available for sale securities, Amortized Cost	66,150	78,076
Available for sale securities, Unrealized Gains	909	1,002
Available for sale securities, Unrealized Losses	(497)	(661)
Available for sale securities, Estimated Fair Value	66,562	78,417
Obligations of states and political subdivisions
Available for sale securities, Amortized Cost	109,615	82,151
Available for sale securities, Unrealized Gains	2,208	2,534
Available for sale securities, Unrealized Losses	(567)	(143)
Available for sale securities, Estimated Fair Value	111,256	84,542
Corporate debt
Available for sale securities, Amortized Cost	32,512	34,931
Available for sale securities, Unrealized Gains	165	176
Available for sale securities, Unrealized Losses	(116)	(205)
Available for sale securities, Estimated Fair Value	$ 32,561	$ 34,902

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E. LOANS, Allowance for Credit Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Commercial and Real estate
Allowance for credit losses
Beginning balance	$ 5,305	$ 5,624	$ 5,549	$ 5,763
Charge-offs	0	0	0	0
Recoveries	16	1,051	22	1,052
Provision	706	(460)	456	(600)
Ending balance	6,027	6,215	6,027	6,215
Ending balance: individually evaluated for impairment	133	128	133	128
Ending balance: collectively evaluated for impairment	5,894	6,087	5,894	6,087
Real Estate Construction
Allowance for credit losses
Beginning balance	1,420	735	849	734
Charge-offs	0	(183)	0	(183)
Recoveries	0	0	0	0
Provision	(723)	165	(152)	166
Ending balance	697	717	697	717
Ending balance: individually evaluated for impairment	0	0	0	0
Ending balance: collectively evaluated for impairment	697	717	697	717
Real Estate Multi family
Allowance for credit losses
Beginning balance	152	369	206	293
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	46	96	(8)	172
Ending balance	198	465	198	465
Ending balance: individually evaluated for impairment	0	0	0	0
Ending balance: collectively evaluated for impairment	198	465	198	465
Real Estate 1 to 4 family
Allowance for credit losses
Beginning balance	1,845	1,835	1,965	1,788
Charge-offs	0	0	(45)	(62)
Recoveries	0	1	1	2
Provision	169	414	93	522
Ending balance	2,014	2,250	2,014	2,250
Ending balance: individually evaluated for impairment	526	481	526	481
Ending balance: collectively evaluated for impairment	1,488	1,769	1,488	1,769
Commercial and industrial
Allowance for credit losses
Beginning balance	961	1,268	1,073	1,237
Charge-offs	0	0	0	0
Recoveries	5	110	18	124
Provision	(118)	(212)	(243)	(195)
Ending balance	848	1,166	848	1,166
Ending balance: individually evaluated for impairment	236	151	236	151
Ending balance: collectively evaluated for impairment	612	1,015	612	1,015
Consumer
Allowance for credit losses
Beginning balance	61	66	58	64
Charge-offs	(5)	(20)	(11)	(31)
Recoveries	1	3	1	3
Provision	(5)	(3)	4	10
Ending balance	52	46	52	46
Ending balance: individually evaluated for impairment	8	0	8	0
Ending balance: collectively evaluated for impairment	44	46	44	46
Total
Allowance for credit losses
Beginning balance	9,744	9,897	9,700	9,879
Charge-offs	(5)	(203)	(56)	(276)
Recoveries	22	1,165	42	1,181
Provision	75	0	150	75
Ending balance	9,836	10,859	9,836	10,859
Ending balance: individually evaluated for impairment	903	760	903	760
Ending balance: collectively evaluated for impairment	$ 8,933	$ 10,099	$ 8,933	$ 10,099

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CONSOLIDATED STATEMENTS OF EARNINGS (Dollar amounts in thousands) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues [Abstract]
Net earnings	$ 2,071	$ 1,629	$ 3,870	$ 3,463
Unrealized holding gain (loss) on available-for-sale securities, net of tax benefit of $954 and $34 for three and six months ended June 30, 2015, and net of tax benefit of $1,034 and $1,754 for three and six months ended June 30, 2014.	(1,373)	1,487	(50)	2,522
Reclassification adjustment for gain on available-for-sale securities sold, net of tax of $63 and $91 for three and six months ended June 30, 2015, and $11 and $16 for three and six months ended June 30, 2014, respectively	(89)	(17)	(130)	(23)
Other Comprehensive (Loss) Earnings	(1,462)	1,470	(180)	2,499
Total comprehensive earnings	$ 609	$ 3,099	$ 3,690	$ 5,962

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C. EARNINGS PER SHARE CALCULATION

6 Months Ended

Jun. 30, 2015

Earnings per share data:

EARNINGS PER SHARE CALCULATION

Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. All common stock equivalents are anti-dilutive when a net loss occurs. A 5% stock dividend was declared in the fourth quarter of 2014, and prior per share amounts have been adjusted to reflect the 5% stock dividend.

Earnings per share have been computed based on the following:

(All amounts in thousands)	Three months ended				Six months ended
	June 30,				June 30,
	2015		2014		2015		2014
Net earnings	$	2,071	$	1,629	$	3,870	$	3,463
Dividends and discount accretion on preferred stock		—		—		—		(170	)
Net earnings available to common stockholders	$	2,071	$	1,629	$	3,870	$	3,633
Average number of shares outstanding		4,296		4,230		4,285		4,207
Effect of dilutive options		119		130		124		135
Average number of shares outstanding used to calculate diluted earnings per share		4,415		4,367		4,409		4,349
Anti-dilutive options not included		93,751		65,940		94,882		258,741

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E. LOANS, Recorded Investment in Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Commercial and Real estate
Ending balance	$ 330,303	$ 318,427	$ 319,661
Ending balance: individually evaluated for impairment	9,544	9,530	9,043
Ending balance: collectively evaluated for impairment	320,759	308,897	310,618
Real Estate Construction
Ending balance	32,648	39,771	39,760
Ending balance: individually evaluated for impairment	2,364	2,373	2,382
Ending balance: collectively evaluated for impairment	30,284	37,398	37,378
Real Estate Multi family
Ending balance	51,613	53,824	53,499
Ending balance: individually evaluated for impairment	0	0	0
Ending balance: collectively evaluated for impairment	51,613	53,824	53,499
Real Estate 1 to 4 family
Ending balance	127,900	128,732	114,869
Ending balance: individually evaluated for impairment	4,843	4,333	3,847
Ending balance: collectively evaluated for impairment	123,057	124,399	111,022
Commercial and industrial
Ending balance	37,745	51,662	42,545
Ending balance: individually evaluated for impairment	1,938	2,315	4,133
Ending balance: collectively evaluated for impairment	35,807	49,347	38,412
Consumer
Ending balance	1,696	1,448	1,434
Ending balance: individually evaluated for impairment	59	64	9
Ending balance: collectively evaluated for impairment	1,637	1,384	1,425
Total
Ending balance	581,905	593,864	571,768
Ending balance: individually evaluated for impairment	18,748	18,615	19,414
Ending balance: collectively evaluated for impairment	$ 563,157	$ 575,249	$ 552,354

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E. LOANS, Past due loans (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Originated
Past Due, Total	$ 3,550	$ 9,434
Current	522,424	524,545
Total Loans	525,974	533,979
Originated | Past Due, 30 - 59 days
Past Due, Total	110	4,688
Originated | Past Due, 60 - 89 days
Past Due, Total	782	2,886
Originated | Past Due, More than 90 days
Past Due, Total	2,658	1,860
Originated | Commercial real estate
Past Due, Total	755	887
Current	297,699	284,365
Total Loans	298,454	285,252
Originated | Commercial real estate | Past Due, 30 - 59 days
Past Due, Total	0	8
Originated | Commercial real estate | Past Due, 60 - 89 days
Past Due, Total	612	879
Originated | Commercial real estate | Past Due, More than 90 days
Past Due, Total	143	0
Originated | Real Estate Construction
Past Due, Total	0	708
Current	30,744	37,119
Total Loans	30,744	37,827
Originated | Real Estate Construction | Past Due, 30 - 59 days
Past Due, Total	0	0
Originated | Real Estate Construction | Past Due, 60 - 89 days
Past Due, Total	0	708
Originated | Real Estate Construction | Past Due, More than 90 days
Past Due, Total	0	0
Originated | Real Estate Multi family
Past Due, Total	0	3,575
Current	41,620	39,804
Total Loans	41,620	43,379
Originated | Real Estate Multi family | Past Due, 30 - 59 days
Past Due, Total	0	3,575
Originated | Real Estate Multi family | Past Due, 60 - 89 days
Past Due, Total	0	0
Originated | Real Estate Multi family | Past Due, More than 90 days
Past Due, Total	0	0
Originated | Real Estate 1 to 4 family
Past Due, Total	619	1,642
Current	123,192	121,880
Total Loans	123,811	123,522
Originated | Real Estate 1 to 4 family | Past Due, 30 - 59 days
Past Due, Total	110	330
Originated | Real Estate 1 to 4 family | Past Due, 60 - 89 days
Past Due, Total	0	200
Originated | Real Estate 1 to 4 family | Past Due, More than 90 days
Past Due, Total	509	1,112
Originated | Commercial and industrial
Past Due, Total	2,176	2,558
Current	27,473	39,993
Total Loans	29,649	42,551
Originated | Commercial and industrial | Past Due, 30 - 59 days
Past Due, Total	0	775
Originated | Commercial and industrial | Past Due, 60 - 89 days
Past Due, Total	170	73
Originated | Commercial and industrial | Past Due, More than 90 days
Past Due, Total	2,006	1,710
Originated | Consumer
Past Due, Total	0	64
Current	1,696	1,384
Total Loans	1,696	1,448
Originated | Consumer | Past Due, 30 - 59 days
Past Due, Total	0	0
Originated | Consumer | Past Due, 60 - 89 days
Past Due, Total	0	0
Originated | Consumer | Past Due, More than 90 days
Past Due, Total	0	64
Purchased Not credit impaired
Past Due, Total	2,406	400
Current	52,204	58,162
Total Loans	54,610	58,562
Purchased Not credit impaired | Past Due, 30 - 59 days
Past Due, Total	108	0
Purchased Not credit impaired | Past Due, 60 - 89 days
Past Due, Total	1,898	400
Purchased Not credit impaired | Past Due, More than 90 days
Past Due, Total	400	0
Purchased Not credit impaired | Commercial real estate
Past Due, Total	2,006	0
Current	28,522	31,852
Total Loans	30,528	31,852
Purchased Not credit impaired | Commercial real estate | Past Due, 30 - 59 days
Past Due, Total	108	0
Purchased Not credit impaired | Commercial real estate | Past Due, 60 - 89 days
Past Due, Total	1,898	0
Purchased Not credit impaired | Commercial real estate | Past Due, More than 90 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate Construction
Past Due, Total	0	0
Current	1,904	1,944
Total Loans	1,904	1,944
Purchased Not credit impaired | Real Estate Construction | Past Due, 30 - 59 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate Construction | Past Due, 60 - 89 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate Construction | Past Due, More than 90 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate Multi family
Past Due, Total	0	0
Current	9,993	10,445
Total Loans	9,993	10,445
Purchased Not credit impaired | Real Estate Multi family | Past Due, 30 - 59 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate Multi family | Past Due, 60 - 89 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate Multi family | Past Due, More than 90 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate 1 to 4 family
Past Due, Total	400	400
Current	3,689	4,810
Total Loans	4,089	5,210
Purchased Not credit impaired | Real Estate 1 to 4 family | Past Due, 30 - 59 days
Past Due, Total	0	0
Purchased Not credit impaired | Real Estate 1 to 4 family | Past Due, 60 - 89 days
Past Due, Total	0	400
Purchased Not credit impaired | Real Estate 1 to 4 family | Past Due, More than 90 days
Past Due, Total	400	0
Purchased Not credit impaired | Commercial and industrial
Past Due, Total	0	0
Current	8,096	9,111
Total Loans	8,096	9,111
Purchased Not credit impaired | Commercial and industrial | Past Due, 30 - 59 days
Past Due, Total	0	0
Purchased Not credit impaired | Commercial and industrial | Past Due, 60 - 89 days
Past Due, Total	0	0
Purchased Not credit impaired | Commercial and industrial | Past Due, More than 90 days
Past Due, Total	0	0
Purchased Credit impaired
Current	1,321	1,323
Total Loans	1,321	1,323
Purchased Credit impaired | Commercial real estate
Current	1,321	1,323
Total Loans	$ 1,321	$ 1,323

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C. EARNINGS PER SHARE CALCULATION (Dollar amounts in thousands) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Earnings per share data:
Net earnings	$ 2,071	$ 1,629	$ 3,870	$ 3,463
Dividends and discount accretion on preferred stock				170
Net earnings available to common shareholders	$ 2,071	$ 1,629	$ 3,870	$ 3,293
Average number of shares outstanding	4,296	4,230	4,285	4,207
Effect of dilutive options	$ 119	$ 130	$ 124	$ 135
Average number of shares outstanding used to calculate diluted earnings per share	4,415	4,367	4,409	4,349
Anti-dilutive options not included	93,751	65,940	94,882	258,741